Banks have sold Rs 2.44 lakh crore bad loans to Asset Reconstruction Companies (ARCs) since 2003 as part of the resolution of the non–performing asset (NPAs), a study conducted by Assocham said. Though there is a huge level of stressed assets, as much as 15 per cent of advances (9.84 per cent NPAs and 4.2 per cent restructured assets) is a matter of concern for the economy and it offers a huge opportunity for the ARCs, it said.
The current stock of stress in the Indian banking system is estimated at Rs 11.80 lakh crore, the Assocham-SIPI-Edelweiss study said. As many as seven ARCs have largely been promoted by banks even as foreign direct investment has also been permitted into the asset reconstruction, which it said should be treated as a resolution and not a recovery business.
The paper said there must be a level playing field and more teeth for ARCs in dealing with the promoters of companies owing a high level of bank debt which has decayed into NPAs. At least 51 per cent conversion should be allowed to ARCs while reconstructing an asset.
“The ARCs are not on par with banking system when it comes to equity conversion. While RBI has given sweeping powers to banks in the form of Strategic Debt Restructuring (SDR) and even in case of normal debt conversion, ARCs are restricted to maximum 26 per cent of equity share in a particular company,” it said.
The paper stressed on introducing incentive structure for banks where 100 per cent debt is sold to ARCs. Further, the banking system is completely against any new exposure including non-fund based to these companies, even if they have come out of their structural issues.
“This leaves the responsibility of providing working capital finance on the ARCs and even non-fund based limits have to be raised against 100 per cent cash margins thus putting more pressure on the resources of stressed asset and impacting the viability,” it said.