Asset reconstruction company India (Arcil) reported a net profit of R7.86 crore in FY14, issuing security receipts (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). In that year, it issued SRs of R759 crore.
However, Arcil, India’s oldest asset reconstruction company (ARC), saw its recoveries fall to R783 crore in FY14 from R1,034 crore in the previous fiscal.
The company, in the RoC filing, blamed the economic slowdown, low asset base at the beginning of the year, subdued economic sentiments affecting fund-raising by stressed borrowers and legal challenges, for an adverse impact on recoveries during FY14. ?The macro-economic situation was not very supportive for recoveries as companies had serious cash flow issues,? said a senior executive at the firm.
Arcil’s assets under management (AUM) stood at
R9,343 crore at the end of March 2014 compared to
R5,564 crore in the previous financial year, a 68% increase. People in the know said the company was able to achieve better profit numbers owing to lower write-offs in FY14 at R63.46 crore, close to one-third of R177.7 crore in the previous fiscal. ARCs, which came into
focus due to the ever-increasing non-performing assets (NPAs) in the banking sector, have bought substantial amount of bad loans
and helped banks clean
their books.
Arcil said in FY14, banks, largely in the public sector, collectively put on auction bad loans in the region of approximately R50,000 crore (principal outstanding), roughly about four times of the loans in the immediate preceding year and the largest in any year since ARCs have been formed.
?Even the deal closure of around R27,000-crore
loans at a consideration of R21,800 crore has also been the highest in any of the auctions in the previous years,? the document said.
Bankers say there has been slowdown in ARCs buying stressed assets after the Reserve Bank of India (RBI) in August mandated the upfront investment in SRs to 15% from the earlier 5%, to ensure that ARCs have ‘more skin in the game’.
According to sources, as a result of this revision, ARCs picked up only R1,000 crore of the R20,000 crore put on the block by banks in the three months to September.
Arcil’s share capital at the end of 2013-14 stood at
R324.9 crore and, to raise third-party funds for financing acquisition of NPAs, Arcil Asset Reconstruction Fund III (AARFIII), a third-party distressed debt fund is being launched, the company said in its filing.