Recasts dry up as ARCs, banks wage price war

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Mumbai | Published: November 26, 2014 12:38:21 AM

Sources said since October, banks have put up R4,000 crore of assets for sale, but ARCs have bought not more than R500 crore

With banks reluctant to sell bad loans to asset reconstruction companies (ARCs) at steeply discounted rates, ARCs expect a dull time ahead.
According to P Rudran, managing director and CEO of India’s oldest ARC — Arcil — the company is now targeting a purchase of around Rs 3,500 crore of bad loans in the fiscal, compared with the Rs 5,000-crore target at the beginning of the year. However, Rudran said, over the next few quarters, banks are expected to be more forthcoming in this regard.

RBI recently mandated a 15% upfront payment by ARCs, higher than the earlier 5%, while acquiring bad loans. This forced ARCs to seek a lower reserve price for the bid as they had to shell out more money upfront.

Sources said since October, banks have put up Rs 4,000 crore of assets for sale, but ARCs have bought not more than Rs 500 crore. People in the know said that amid hard negotiations over the reserve price, banks have shied away from selling bad loans.

During the July-September period, banks have put close to Rs 25,000 crore of assets on the block, of which Rs 1,000 crore was sold for a consideration of Rs 600 crore.

“Sale of assets has slowed down drastically in this quarter,” said Siby Antony, managing director and CEO, Edelweiss ARC. He added that the ARC Association has requested RBI to look into the pricing issues.

Antony said banks have taken a conservative approach since the September quarter. This, he said, could change only once the banks agree to a lower reserve price. “Sale of assets cannot happen if banks quote a reserve price that is equal to their total dues,” said Antony.

Bankers said ARCs are being very selective in their purchases. Earlier, ARCs used to buy bad assets from banks at a hefty discount of close to 30-40%, but now banks are unwilling to sell assets at such discounted prices. “The situation at present is dull; very little sales are happening,” said Eshwar Karra, CEO, Phoenix ARC, which is sponsored by the group companies of the Kotak Mahindra Group.

Due to an increase in NPAs, banks have of late been selling very aggressively to ARCs to clean up their books and this has prompted RBI to step in. RBI had pointed out in its financial stability report that a spurt in the activities of ARCs, driven by banks’ efforts to clean up balance sheets, calls for a closer look at the arrangements between the two parties.

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