The implementation of the expected credit loss (ECL) framework is likely to make early-stage stressed assets an important opportunity for asset reconstruction companies (ARCs), as banks will recognise credit stress earlier, said Phanindranath Kakarla, managing director and CEO of ARCIL.
ARCIL has already purchased some non-performing assets (NPAs) as well as non-NPA stressed accounts, but expects the latter to become formidable once ECL comes into effect.
“Some sellers do include non-NPA accounts as part of stress accounts and we buy them. We expect them to become fairly important when ECL is implemented, as there will be faster recognition of really bad assets,” Kakarla said.
Early-Stage Stress
The company is looking to tap the early-stage stress opportunity through a collections-as-a-service business for banks and NBFCs. ARCIL plans to use its existing collections infrastructure to service early-stage assets, Kakarla said.
The company seeks to exploit the rapidly-expanding credit market. Kakarla said organised systemic credit across banks and NBFCs is now more than Rs 200 lakh crore. Even if a small percentage of this book turns into NPAs, the potential stressed asset pool would be a large sum. Systemic credit is also growing by around Rs 30 lakh crore a year, providing a large potential market for ARCs, he said.
Within this expanding credit market, retail assets are growing faster than corporate assets. ARCIL’s retail assets have grown around 56% over the last two years, Kakarla said.
The company is nevertheless seeing growth in its corporate book as well and remains positioned across corporate, small and medium enterprise (SME) and retail assets.
It will launch the initial public offering on September 9, with bidding closing on September 11. The company has fixed the price band at Rs 132-139 per share, with a face value of Rs 10 each. The offering is entirely an offer for sale (OFS), comprising up to 5,27,31,946 equity shares offloaded by existing shareholders.
Avenue India Resurgence and State Bank of India are the promoter selling shareholders, offering up to 24.8 million and 10.9 million shares, respectively. Lathe Investment, the investor selling shareholder, is offloading up to 16.24 million shares, while Federal Bank is selling up to 0.7 million shares.
Since the issue is a pure OFS, no fresh capital will flow into the company.