The country?s oldest and largest stressed assets buyout firm, Asset Reconstruction Company of India Limited (ARCIL), has made its first loan acquisition this year, buying R100 crore worth of stressed small and medium enterprise (SME) loans from Karur Vysya Bank. The business of buying stressed assets has been dull off late with ARCs and banks disagreeing over the pricing. Also ARCs prefer acquiring stressed assets by issuing security receipts (SRs), while banks insist on upfront cash. Standard Chartered is also said to have recently sold some of its stressed assets to Mumbai-based International Asset Reconstruction Company (IARC). P Rudran, MD and CEO of ARCIL, said that these are one-off cases and do not necessarily point to the start of a new trend.
In 2011-12, ARCIL purchased less than R100 crore worth of stressed assets compared with R1,300 crore in the previous year. The firm?s assets under management (AUM) shrunk from R6,800 crore to R6,000 crore between 2010-11 and 2011-12 as loan recoveries outpaced buyings.
Things are moving slowly particularly with public sector banks which require several clearances for the sale of assets. Rudran said, ?The auctions for sale of stressed assets are not happening. Most of the discussions between banks and ARCs are being done bilaterally,? he added.
In another development, ARCIL last week entered into an agreement with Bank of Maharashtra to act as a recovery agent for the bank. As a recovery agent ARCIL will not purchase stressed assets from the bank, but will help banks in their loan recovery process. Rudran said that other banks like Bank of India and Allahabad Bank are also seeking board approval to appoint ARCIL as a recovery agent.
Rudran said that the finance ministry has recently introduced a new incentive structure for ARCs acting as recovery agents. As per the new incentive scheme, the lower the collateral value on a loan account, the higher is the commission for the ARC. He, however, said the agency business, which is a fee-based activity, will not bring in a large portion of ARCIL revenues.
ARCIL has been facing some troubles in recent times with the Reserve Bank of India (RBI) questioning its accounting practices and Fitch downgrading ratings from A+ to A- with negative outlook. Rudran, who took over the reins of ARCIL in April 2012, said that ARCIL currently has a net worth of R1,600 crore with R324 crore share capital. In financial year 2010-11, it made a net profit of R3.3 crore. ARCIL is expected to announce its 2011-12 results at the end of September. Asset reconstruction companies (ARCs), through a trust, buy stressed assets of banks at a discount, recover them, and earn a fee for managing the trust. There are currently 14 ARCs functioning in India.