Asset Reconstruction Company of India Limited (Arcil), reported a net profit of R85 crore in the financial year 2011-12, buying assets worth less than R100 crore. The firm had re-stated profits for the previous year at R3.3 crore, according to information available with senior company executives, having purchased stressed assets to the tune of R1,300 crore. Arcil?s assets under management (AUM) stood at R5,800 at the end of March 2012 compared with R6,900 crore in the previous financial year.
The country’s oldest and largest stressed assets buyout firm had reported a profit of R51 crore for 2010-11 before the Reserve Bank of India (RBI) questioned its accounting practices. Arcil?s results were declared following a board meeting held in late September. It also paid 12% dividend to shareholders, which includes banks like State Bank of India that has a 19.95% stake in the bank, IDBI Bank with a 19.18% stake and ICICI Bank with a 13.26% stake.
People familar with developments attributed the rise in profits in 2011-12 to higher recoveries. 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 about 14 ARCs functioning in India.
So far in the current financial year, ARC has purchased around R125 crore worth of stressed small and medium enterprise (SME) loans from Karur Vysysa Bank. Moreover, it had recently acquired one corporate stressed account from IDBI Bank for a little less than R10 crore. It has made no purchase of stressed retail loan assets this year.
?We are now seeing greater openness on the part of bankers to sell their stressed loans to Arcil than was the case over the past year. The sharp rise in non-performing asset (NPA) levels could be the reason,? the source said.
Bankers say there has been a slowdown in the sale of stressed assets to ARCs as there is a disagreement over the pricing of the loans between the banks and ARCs.
ARCs prefer issuing security receipts (SRs) to banks while undertaking loan recoveries, while banks insist on payment of upfront cash for purchasing stressed loans from them.
Arcil?s share capital at the end of 2011-12 stood at R324 crore and its net worth was R1,600 crore. Arcil currently holds about R500-600 crore cash in hand and expects recoveries to add to this cash pile. The source say Arcil is currently not facing any crunch for resources and has no plans to raise further funds anytime soon. In 2011-12, Arci raised a R200-crore fund from a clutch of investors.