Financial Daily from THE HINDU group of publications
Tuesday, Nov 23, 2004
Financial Daily from THE HINDU group of publications Tuesday, Nov 23, 2004 |
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Money & Banking
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Foreign Banks StanChart plans firm to take out stressed assets
Richa Sharma
Mumbai/Bangalore , Nov. 22 STANDARD Chartered Bank is entering the distressed assets takeout business. It is setting up an asset reconstruction company likely by January 2005. The company is likely to take over the distressed assets of other organisations, primarily banks. When contacted, a bank official said that the asset reconstruction company would likely begin operations in the first quarter of the next calendar year, but declined to provide details. He also refused to comment on the capital to be employed or the assets that would be taken over by the new company. Under the present RBI guidelines, asset reconstruction companies are expected to have a minimum capital of Rs 20 crore and a capital-to-risk weighted asset ratio of at least 15 per cent. StanChart is the second foreign owned bank to enter the sector. ING-Vysya Bank has tied up with ACTIS (formerly Commonwealth Development Corporation of UK). StanChart is already active in the asset reconstruction field and ranks among the top 40 companies specialising in taking out distressed assets. The bank had picked up a 10 per cent equity stake in Asrec India Ltd, the ARC floated by UTI Asset Management Company. The bank had acquired this equity stake in January. Bank of India, Indian Bank and IL&FS had also picked up 10 per cent equity each in Asrec India Ltd. Asset reconstruction companies are specialised vehicles to turn around the distressed assets of other institutions, commonly known as non-performing assets. The ARCs take over the distressed assets and then recover the dues on these loans, with discounts received contributing to margins. Typically, the discounts are tied to the asset risk. High-risk assets command high discounts. If Rs 100 crore worth assets were difficult to be recovered, it would probably be sold to the ARC at a higher discount than the asset that has better chances of recovery. Currently, Asset Reconstruction Company of India Ltd and Asrec dominate the asset reconstruction scene in the country. Global companies such as CDC Capital Partners, Merrill Lynch, Colony Capital, Cerebrus, Morgan Stanley, GE Capital, Shinsei Bank, GW Fund, and Newbridge plan to enter the Indian market. Some have already carried out a due diligence on the market but are still awaiting the "legislative intent" of the Government. With the passage of the Ordinance amending Section 17 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, this intent has become clear, bankers said. With the entry of these participants the competition in the ARC market is expected to intensify. Already, some banks have entered the sector. Kotak Mahindra Bank had taken over junk loans worth Rs 215 crore from ICICI Bank in October. A majority of the assets taken over by the bank were loans to 110 small and medium sized companies. A part of these assets was written off as NPAs by ICICI Bank. At one point of time, Kotak Mahindra Bank had plans to float an ARC after its conversion into a bank. The bank currently does recovery business for corporates, NBFCs and a few banks for a fee.
More Stories on : Foreign Banks | Non-Performing Assets
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