Tag: arc

Lenders to approve the transfer of 30-40 loans by next week, BFSI News, ET BFSI

Banking & Finance

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The Indian Banks’ Association (IBA) has identified 102 corporate bad loans, totalling to Rs 2 lakh crore, where the amount outstanding in each is over Rs 500 crore that can be transferred to the proposed National Asset Reconstruction company (NARC) or bad bank.

It has asked its member banks asked members to identify large loans where they are lead bankers and get approval from co-lenders so that these loans can be sold to a National Asset Reconstruction company.

The loans identified by IBA include NPAs in a variety of industries — including oil, steel, cement and roads, with many admitted under the insolvency process. These loans are almost fully provided for over the years and they exclude the ones where there is fraud involved or those currently under liquidation. About 75% of the lenders by value need to approve to transfer the loans to an ARC.

The process

In the first phase, lenders are expected to approve the transfer of 30-40 loans by next week for transferring the loans from the books of banks is already in place.

Once the lenders decide on selling the loan, the NARC will make them an offer based on the scope of recovery. With the NARC’s offer on hand, the lenders will hold a ‘Swiss Challenge’, where rivals are allowed to better the offer made by a chosen bidder.

While rival in the private sector will be given an option to bid, it is unlikely they will succeed. This is because the security receipts issued by the NARC for 85% of the value of the loans would be guaranteed by the government. Since private companies do not have a government guarantee, they can only hope to win if they can provide cash. The Swiss Challenge will enable the public sector banks to comply with RBI’s norms that require banks to sell loans through a price-discovery process rather than doing a one-to-one deal.

The NARC will pay up to 15% of the agreed value for the loans in cash. The bad bank is also expected to do a good job in recovery as it will create a trust that will assign the task to an asset management company (AMC) in the private sector.

Each corporate nonperforming asset (NPA) will be converted into a special purpose vehicle, which will be sold by the AMC.

The bad bank

Nine banks and two non-bank lenders, including the State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB), are coming together to jointly invest Rs 7,000 crore of initial capital in a proposed bad bank that aims to help extract funds stuck in bad loans. Two other state-run financiers of power projects will also own stock in the bad bank.

Canara Bank, Union Bank of India and Bank of India will join their larger state-run peers as investors in the bad bank. ICICI Bank, Axis Bank and Life Insurance Corp of India-owned IDBI Bank are also among the shareholders. State-owned Power Finance Corp and Rural Electrification Corp will also be equal shareholders in the new company.

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RBI sets up a six-member committee to review ARC regulations, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India announced formation of a committee to conduct a comprehensive review of the functioning of ARCs in the financial sector ecosystem and to recommend suitable measures for enabling such entities to meet the financial sector’s growing needs.

Committee will submit its report within three months from the date of its first meeting. The Reserve Bank of India’s Department of Regulation will provide the committee with the necessary secretarial support.

The committee is headed by Sudarshan Sen former RBI executive director and other members comprises Vishakha Mulye, executive director, ICICI Bank, P N Prasad, former deputy managing director of State Bank of India, Rohit Prasad, professor of economics, Management Development Institute, Gurugram, Abizer Diwanji, partner, Ernst and Young, and chartered accountant R Anand.

The committee will review business models of the ARCs, examine the current legal and regulatory system, and make recommendations on ways to enhance ARC efficacy. It will also examine their role in stressed asset resolution under the Insolvency and Bankruptcy Code (IBC) and make recommendations to enhance security receipt liquidity and trading.



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Bad bank can be only a warehouse of bad assets, says Siby Antony, BFSI News, ET BFSI

Banking & Finance

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Antony has been working in the ARC sector for the last two decades. He was heading Edelweiss ARC and now is the Chairman, ARC Association of India. In an interview with ETBFSI he explained different aspects of the bad bank…

He believes “Bad bank will be a warehouse of bad assets. If the objective of a bad bank will be to aggregate the debt and hand it over to ARC and AIF it will work. Because debt aggregating is still a problem in ARC the reasons being different banks have different provision coverage and many more such issues.” he said.

Antony also narrated the crux of the issues pertaining to asset reconstruction companies (ARCs). Such as why are banks unable to find resolution despite there being 28 ARCs? What are the major challenges that ARCs face? What has the Association of ARCs asked the RBI?

Antony also sees a surge in cases in the National Company Law Tribunals after March once the Insolvency and Bankruptcy Code suspension is revoked.

Also read: Raghuram Rajan’s formula has led to over 50% recovery for ARCs

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RBI Guv, BFSI News, ET BFSI

Banking & Finance

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The proposed asset reconstruction company (ARC) for management of non-performing assets (NPAs) announced in Budget 2021 will not ‘jeopardise’ the activities of existing players in the space, Reserve Bank Governor Shaktikanta Das said on Thursday. While presenting the Union Budget 2021, Finance Minister Nirmala Sitharaman proposed to set up an asset reconstruction company and asset management company to consolidate and take over existing stressed debts and manage them.

“(In) no way will it (proposed ARC) jeopardise the activities of the existing ARCs. I think there is scope to have one more strong ARC…,” the governor said at an event organised by the Bombay Chamber of Commerce.

There are close to 28 asset reconstruction companies operating in the country at present.

Das said the proposal for setting up an ARC was given by public sector lenders to the government, which accepted it and announced it in the Budget.

The proposed entity will take over stressed assets from the books of public sector banks, and try to resolve them like any other ARCs are doing, he noted.

Das also said strengthening of regulatory architecture for existing ARCs is very much on the central bank’s agenda.

“Refining and further upgrading the regulatory architecture in respect of ARCs to ensure that they have a skin in the game and they are very much in business, is one aspect which is receiving a lot of attention from us,” he said, adding last year he had interacted with a group of ARCs but COVID-19 slowed progress on that front.

Speaking about stressed assets, the governor said there is growing awareness and realisation among banks in dealing with NPAs.

Even during the period when the Supreme Court ordered an asset classification standstill, banks proactively provisioned for stressed assets, he said.

The governor said RBI has also sharpened and deepened its supervisory methods and is now going to deep dive into areas of banking that were unexplored earlier.

With the help of the Central Repository of Information on Large Credits (CRILC) data coming in from banks on a regular basis, RBI has an idea on the quantum of stressed assets in various default buckets, he said.

“We have a precise idea of the build up of stressed assets in banks and as soon as we see a sign of stress, we immediately enter into a discussion with banks and proactively deal with the problems,” he emphasised.

The governor said apart from RBI’s supervisory and regulatory initiatives, the key to all issues is improving the governance in both public and private sector banks.

One area which requires focus of the bank management is on improving their credit appraisal skills and taking measures to see whether evergreening of loans, which was happening at some point, is suitable or not, Das said.

He also said the country’s financial sector currently is in a much better place than it was earlier. HV ABM ABM



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Ahead of new ARC formation, Punjab National Bank to sell Arcil stake

Personal Finance

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A detailed framework for the ARC is in the works, financial services secretary Debasish Panda said earlier this month, adding that the government will not be putting in any money.

As the process to set up a new national asset reconstruction company (ARC) gathers steam, Punjab National Bank (PNB) has begun the process to exit Asset Reconstruction Company (India), also known as Arcil. The bank’s investment arm on Monday sought expressions of interest from potential buyers in a public notice.

“PNB has initiated a sale process to offer its holding of 3,25,06,486 equity shares i.e. 10.01% of the paid-up equity share capital of ARCIL (“proposed transaction”). PNB Investment Services Limited is the advisor to PNB (referred to as “PNBISL”/ “advisor”) for the proposed transaction,” PNBISL said in the notice.

Arcil’s other sponsors are: Avenue India Resurgence, State Bank of India, IDBI Bank and ICICI Bank. Arcil is an associate member of the Indian Bankers’ Association. In November 2018, US-based Avenue Capital bought a 27% stake in the company for an unspecified amount as investors IDFC Bank, Ashmore Capital, FirstRand Bank, Barclays, Singapore’s GIC and Karur Vysya Bank exited it.

There has been little clarity so far on how the new ARC, proposed in the Budget, will be funded. While some government officials have said that it will be up to banks to put in seed money, it is not yet clear which banks will actually invest. A detailed framework for the ARC is in the works, financial services secretary Debasish Panda said earlier this month, adding that the government will not be putting in any money.

FE had reported in January that bankers plan to seek two exemptions for the new ARC. First, relaxation of the September 1, 2016 circular which effectively requires banks to provide for an asset assigned to ARCs as if it were still on the bank’s books. The other would be to exempt the new ARC from making future provisions for assets it buys.

In a recent report, SBI’s economic research wing said public sector banks (PSBs) now have a provision coverage ratio of around 86% (up from 62% in FY18). “This implies that the PSBs would have provided for most of the bad assets and a wholesale transfer of the bad assets to the bad bank is just a technical issue and the process of recovery and resolution could be carried out much better,” the report said.

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Veena Sivaramakrishnan, BFSI News, ET BFSI

Personal Finance

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The resolution framework for stressed assets has been in the works for sometime from the time of Project Sashakt itself and the AMC-ARC structure has been attractive leading to competition because there is now an expectation that there will be competition in this market so the price discovery would get better because NPAs don’t have a mechanism by which they’re traded.

Veena said, “AIFs coming into fray would allow other players to also enter into this market which is not permitted directly and certainly the first step in the right direction.”

On the framework, she says, “ARC purchases bad debt and looks at recovering directly from the borrower and is fairly limited. With an AMC coming into picture means there’s a specialist in the frame who can provide the know-how on actual resolution and outside IBC.”

An expert AMC will play a role in restructuring an account and therefore arrive at a resolution.

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