Lenders have managed to sell non–performing asset (NPAs) to the tune of Rs 2.44 lakh crore to asset reconstruction companies (ARCs) in 14 years up to March 2017, even as the current stock of stress in the Indian banking system is estimated at Rs 11.80 lakh crore, according to an Assocham-SIPI-Edelweiss study. The report said that though a huge level of stressed assets, as much as 15% (9.84% NPAs and 4.2% restructured assets), is a matter of concern for the economy, it offers a huge opportunity for the ARCs.
As many as seven ARCs have largely been promoted by banks even as foreign direct investment (FDI) has also been permitted into the asset reconstruction, which the paper said should be treated as a resolution and not a recovery business. It added that 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% conversion should be allowed to ARCs while reconstructing an asset,” the study said.
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“The ARCs are not on par with the banking system when it comes to equity conversion. While RBI has given sweeping powers to banks in the form of strategic debt restructuring (SDR) and even in the case of normal debt conversion, ARCs are restricted to a maximum 26% of equity share in a particular company,” it added.
The report stressed that an incentive structure has to be introduced for banks where 100% debt is sold to ARCs. “The banks are not following a consortium approach, which is a major issue that leads to a 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 added.