In response to your editorial (?Asset recovery?, Feb 15), India does not have active daily liquid markets even for good corporate debt, leave aside NPAs. Arcil and Arsec have the professional capability to effectively deal with NPAs, as foreign banks may do, but you rightly say that fears of the CVC, CBI and so on stop them in their tracks and paralyse decision-making. In the public sector, if you do not do anything, your record remains clean (no work, no mistakes), and you get easy promotions. But if you work aggressively, and happen to make some errors (stepping on the toes of some influential person with vested interests can qualify as one), you may be bundled out to some corner for life. The premium, therefore, is on inaction, though it should ideally be on action (calibrated calulated risks), even if the result goes wrong at times.
Foreign banks buy NPAs to earn tax benefits and then sell them to a host of private equity funds/investors abroad at a profit. Before that, they often add value to these assets, by using their experts. This is often arranged by private equity players when they offload their investments (to company owners who are keen on buying back revived assets, or simply to loan predators).
All these processes have intermediaries and each takes its cut in the process, which our public sector does not legally allow. So, Arcil and Arsec just have to sell these NPAs at heavy discounts to foreign banks/PE investors. It is time the public sector got cracking, too. After all, banks, ARCs and even private equity funds are busy using intermediaries. The market is a great teacher.
?Rakesh Chopra, Consultant, Bank of India
