Until now, Arcil has been issuing security receipts (SRs) to banks in lieu of the NPAs bought, which were then redeemed once the accounts are resolved. Arcils managing director Rajendra Kakker said, We are putting in place mechanisms to offer part cash and part SRs to banks for selling their NPAs to us. Given our limited capital, we will not be able to offer all cash. So we will tie-up with third party investors who will provide the necessary funds.The component of cash in the deal will be case-specific, said Mr Kakker. Admitting that the process of NPA accretion for Arcil has been very slow, Mr Kakker said that the cash component would entice more banks to sell their NPAs to Arcil.
A large section of the banking community has been unhappy with the monopoly that Arcil enjoys in the market. The general sentiment is that the ARC is taking advantage of its sole player status to offer deeper discounts, and a less than fair value for NPAs, than would have been the case if there were more than one ARC.
Moreover, with the Reserve Bank of India (RBI) putting in place guidelines to allow banks to buy and sell NPAs, more banks are keen on exercising that option, rather than turning to an ARC.
Bankers opine that a debilitating factor in an ARC-recourse is that the money is realised over a long period of time. Moreover, the SR-model carries an inherent risk factor, exposing the bank to the resolution of the asset. So while the bank would stand to gain more if the amount realised by Arcil post-resolution was more than anticipated, there is a likelihood of the bank getting an even lesser valuation if the amount recovered is also less than expected, a risk I am not willing to take on an account which has already proven non-performing, said a senior official at a leading public sector bank.Another banker said, When I am getting an opportunity to encash my NPAs which are currently affording me zero value, why would I go to an Arcil, get further exposed to the NPA and then not be sure when the money will be realised.