Asset Reconstruction Company (India), the country’s oldest ARC, will be selective in buying large corporate bad loans from banks and wants to enhance its focus on retail assets, MD & CEO Vinayak Bahuguna said on Wednesday. He added that Arcil could raise around $500 million in FY16.
Speaking to reporters, Bahuguna–who joined the company last month – said as Arcil looks for opportunities, it will pick and choose assets that suit its strategy. “Banks typically come up with auctions with a mixed bag of assets and expect ARCs to buy them. We would prefer to have the ability to buy assets on industry-wise preferences if that is where we want to build expertise,” he said.
Arcil’s assets under management (AUM) stand at R11,000 crore, out of which the retail book is around R800 crore and the balance comprises corporates and SMEs.
Bahuguna said while the company sees lot of opportunity in retail assets, it plans to be very selective in the large corporate space. Asset pricing is one of the important factors since many auctions go unattended, he said. “For the last 13 years of the industry, the average return on equity for ARCs has been below 6%, which is proof enough.” He added that all ARCs put together have a capital base of R3,000 crore, whereas the total bad loans in just the public sector banks (PSBs) are around R2.67 lakh crore. “How do we take this capital base of R3,000 crore ($600 million) to a level of $5 billion?” he said.
Bahuguna said it is difficult to raise local capital as the level of sophistication required by domestic players to understand risks and opportunities in the sector (asset reconstruction) is absent. “Our sense is that this solution (to capital raising) has to come from foreign capital. Capital is available overseas and it has to find an opportunity,” he said. On capital-raising problems, he said ARCs have a restriction of up to 74% through FII and FDI combined.
“If someone is writing a big cheque, he wants to know whether he is in control of the money. So, the restriction is a big hurdle; sponsors are restricted to 49%, which cannot be justified in the current environment,” said Bahuguna.
1.Arcil’s assets under management stand at R11,000 crore, out of which the retail book is around R800 crore
2.All ARCs put together have a capital base of R3,000 crore, whereas total bad loans in PSBs are around R2.67 lakh crore
3.ARCs have a restriction of up to 74% through Foreign Institutional Investor and FDI combined