Sidbi asset reconstruction arm to start in Mar

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New Delhi: The SME financing institution Small Industries Development Bank of India (Sidbi) on Sunday said its asset reconstruction arm is likely to become operational by the end of March 2009.

“We have applied for RBI approval and hopefully we should have the regulatory clearances in a month or two,” Sidbi chairman and managing director R M Malla said.

The ARC should start its operations by the end of the current fiscal subject to the regulatory approval, he said. Asset Reconstruction Company (ARC) is registered with the RBI as Securitisation or Reconstruction Company under the SARFAESI Act for carrying on the business of reconstruction of banks’ non-performing assets (NPAs).

A subsidiary has been incorporated called India SME Asset Reconstruction Company (ISARC) with the initial paid up capital of Rs 1 crore, Malla said, adding, equity is being raised at present. The company would focus primarily on acquisition of loans to the SMEs which are currently facing credit crunch.

The estimated non-performing loans to SMEs by the public sector banks stood at over Rs 8,000 crore.

The industry sold about Rs 4,000 crore of NPAs in 2006-07. Of the estimated Rs 1,00,000 crore of bad assets in the system, less than a third have gone off the book in the last few years.

Sidbi as a lead partner have about 26% stake in the company. Remaining stake is distributed among 10 public sector banks, LIC and two state finance corporations.

“We have got some very good partners like Punjab National Bank, Bank of Baroda, Canara Bank and United Bank of India,” he said. Besides, Sidbi recently invited Expressions of Interest (EoIs) from consultancy organisations to enable the company put in place Basel II compliant integrated risk management system for all its operations.

The consultant would have to review the entire risk management framework of SIDBI for all its operations and suggest, design and implement approved Basel II compliant bank-wide integrated risk management systems, Malla said.

These include carrying out all necessary modifications to the existing risk management systems for credit, market and operational risks, provide necessary training to Sidbi officials and documenting the entire jobs carried out and providing suitable reference manuals to the bank, he added.