Contact Your Financial Adviser Money Making MC
2
May 2017
As a crucial
part of the resolution of the non-performing assets (NPAs), Rs 2.44 lakh crore
worth of gross NPAs have been sold to the Asset Reconstruction Companies (ARCs)
while the current stock of stress in the Indian banking system is estimated at
Rs 11.80 lakh crore, a study has stated.
Seeking
a level playing field with the banks in terms of conversion of loans into
equity, the study said though a huge chunk of stressed assets, as much as 15
per cent of advances (9.84 per cent NPAs and 4.2 per cent restructured assets),
is a matter of concern for the economy, it offers huge opportunity for the
ARCs. The Total Investment &
Insurance Solutions
The
study was carried out jointly by industry lobby Associated Chambers of Commerce
and Industry of India, Society of Insolvency Practitioners of India and
Edelweiss.
"While
ARCs are an important means to help banks manage NPAs, at its heart, ARC
business is a resolution business and not a recovery business. ARCs do not have
any magic spell for revving a non-performing assets," Assocham Secretary
General D.S. Rawat said.
He said
the process of resolving a stressed asset requires "aggregation of debt
outstanding to various banks, arrangement of capital, right sizing the business
and bringing in a strategic partner".
"This
requires a period of 3-5 years", he added.
As many
as seven ARCs have largely been promoted by banks even as foreign direct
investment has also been permitted into the asset reconstruction, which the
study paper said should be treated as a resolution and not a recovery business. The Total Investment & Insurance
Solutions
The
study said there must be a level playing field along with more teeth to ARCs
for dealing with the promoters of companies owing a high level of bank debt
which has decayed into NPAs.
"At
least 51 per cent conversion should be allowed to ARCs while reconstructing an
asset," it noted.
"The
ARCs are not on par with the banking system when it comes to equity conversion.
While RBI has given sweeping powers to bank in form of Strategic Debt
Restructuring (SDR) and even in case of normal debt conversion, ARCs are
restricted to maximum 26 per cent of equity share in a particular
company," it said. The Total
Investment & Insurance Solutions
The
study stressed that incentive structure has to be introduced for banks where
100 per cent debt is sold to ARCs. The
Total Investment & Insurance Solutions
"The
banks are not following a consortium approach which is a major issue that leads
to delay of 12-18 months for debt aggregation. ARCs have to resort to a
time-consuming process of dealing with each bank separately, often at different
commercial terms," it said.
"The
companies under reconstruction require working capital and often the non-fund
based requirements are high. The banks selling NPAs to ARCs, cannot lend, while
non-bank entities, such as private equity /Non Banking Financial Company,
demand very high interest along with priority in repayment over existing
debt," it added. The Total
Investment & Insurance Solutions
ARCs have
been doing a lot of work to ensure that the banking system is relieved from the
structural NPA problem which they are currently facing, the study said.The Total Investment & Insurance
Solutions
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