The Hindu Business Line : ‘Prices offered by asset recast cos for NPAs sold are low’

Asset reconstruction companies (ARCs) in the country can look at offering a reasonably better price for the assets sold by banks, according to Mr Ananthakrishna, Chairman and Chief Executive Officer of Karnataka Bank Ltd.

However, at the same time, he commended the role played by Asset Reconstruction Company of India Ltd (ARCIL) – which has come out with security receipts – for facilitating that kind of market in the country.

Delivering the keynote address at a seminar on ‘Unlocking capital from non-performing loans’, jointly organised by Karnataka Bank, Corporation Bank and ARCIL, here on Wednesday, he said: “We feel that the price offered by the ARCs to the assets sold by banks is rather low. May be, they have made a beginning. Success is yet to be seen. The objective of the ARCs is to convert the NPA into a tradable commodity. In that, I think, success so far achieved is only to a limited extent.”

Some ARCs that are going in for cash payment are buying the assets for a song. In this regard, ARCIL has come out with security receipts. It is commendable. These security receipts are tradable securities with the banks. Today the NPAs can be traded with security receipts. ARCIL has facilitated that kind of market in the country, he said.

Mr Ananthakrishna said that financial discipline is the sine qua non for the economy of any country. Financial system should become vibrant within the framework of law. ARCIL should aim at making the market more alive, keeping the bankers happy while ensuring that the borrowers are not unhappy.

Mr H.M.A. Khan, General Manager of Corporation Bank, said that his bank adopts a three-pronged approach for a better NPA management.

First one is the preventive model where steps are taken to see that no new loans become NPAs. In the second approach, the bank intervenes immediately if at all some loans become NPAs due to some reasons. “In the process, you recover a small amount and upgrade a big account,” he said.

In the third approach, the bank looks at resolution and the settlement. He termed SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act as an effective tool in NPA management.

Mr S. Khasnobis, Managing Director and Chief Executive Officer of ARCIL, was present on the occasion.