Financial services firm IIFL Finance is planning to make a fresh start in the asset reconstruction business by setting up an asset reconstruction company (ARC). IIFL is in the process of applying for a licence from the Reserve Bank of India (RBI) to form an ARC, sources said.
The company had earlier set up IIFL Asset Reconstruction and applied for a licence from the banking regulator. However, it could not obtain the same and the ARC remained inactive in terms of acquiring clients and generating revenue.
IIFL has tried other ways as well to re-enter the ARC sector. In a bid to grow inorganically, the company tried to acquire stake in an existing ARC. “The company wanted to acquire stake in an existing ARC and it also conducted due diligence, but negotiations failed due to some disagreements over valuation,” said a source.
The idea behind acquisition of stake was to get a quick entry into the ARC business, he added. Applying for a fresh licence from the RBI is a time-consuming process as the regulator carries out strong scrutiny before according its approval. However, acquisition would have given IIFL an instant start.
The focus of the new ARC will be acquiring retail loans, according to sources. Queries sent to the IIFL group remain unanswered till the time of going to the press.
The growing asset reconstruction sector, which currently has 27 players, has attracted a number of companies in the past. The latest player to enter this sector is Chennai-headquartered conglomerate Shriram Group.
Aiming to strengthen the securitisation sector, the RBI in 2022 raised the minimum capital requirement for setting up an ARC to Rs 300 crore from Rs 100 crore.
ARCs help banks clean their balance sheets as they buy non-performing assets or bad loans from them. Total dues acquired by ARCs reached Rs 9.4 trillion at the end of December 2023, from Rs 8.9 trillion at the end of the September 2023 quarter, according to figures provided by the Association of ARCs in India. They acquired nearly Rs 41,644 crore of bad loans in Q3FY24.