Lenders managed to sell non-performing assets (NPAs) worth Rs 20,000 crore to asset reconstruction companies (ARCs) in FY15 out of more than R90,000 crore of assets put on sale, P Rudran, MD & CEO, Asset Reconstruction Company India (ARCIL) said.
“In FY 15, the overall environment was rather slow and, thus, there was a slowdown in sale of assets as well. It was evident particularly from the second quarter onwards after the RBI circular on increasing the mandatory upfront investment from 5% to 15%,” Rudran said.
He added that, in FY14, banks had offered assets worth R40,000 crore and ARCs bought loans amounting to R22,000 crore.
Rudran said the reserve prices should be more practical, considering the threefold increase in upfront payments. “Though a higher contribution from an ARCs is a good thing, asset valuations never got adjusted. Had that happened, further sale of assets would have been possible,” he said.
Earlier, ARCs were buying assets from banks at heavily discounted prices, but, now, banks have been insisting that they can’t take a hit just because ARCs have to shell out more money upfront.
“We have acquired assets only if the discount stays near 50-55% and have refrained from assets where banks demanded less discount. Through our internal calculations we know that with that kind of an acquisition, we won’t be able to
resolve those assets,” Rudran explained.
Last year, RBI had asked ARCs to increase the
mandatory upfront investment in security receipts (SRs) to 15% from 5% to ensure they had ‘more skin in the game’.
Owing to a jump in NPAs, banks have of late been selling quite aggressively to ARCs to clean their books, prompting RBI to step in.
According to Capitaline data, total bad loans of the banking sector stood at R3.03 lakh crore in Q3FY15.
“A spurt in the activities of ARCs driven by banks’ efforts for cleaning up their balance sheets, calls for a closer look at the extant arrangements between ARCs and banks,” RBI had said in its financial stability report. Arcil had reported a net profit of R7.86 crore in FY14 and issued SRs worth R4,376 crore. The firm had re-stated profits for the previous year at R39 lakh, according to the company’s filing with the registrar of companies (RoC), having issued SRs to of R759 crore.