Money & Banking

New ARCs will induce competition: SBI chief

Our Bureau. Mumbai | Updated on February 04, 2021

The idea is to address large divergences observed in asset classification and provisioning in banks’ credit portfolios vis-à-vis RBI’s supervisory assessments

The proposed Asset Reconstruction Company (ARC)-Asset Management Company (AMC) structure for the resolution of stressed assets of banks will induce competition among ARCs, thereby shaking up the market, according to Dinesh Kumar Khara, Chairman, State Bank of India (SBI).

“I am sure other ARCs will…rise to the occasion and maybe they will also re-think their strategies,” he said. There are about 28 ARCs in the country.

In her Budget speech, Finance Minister Nirmala Sitharaman said an Asset Reconstruction Company Ltd and an Asset Management Company would be set up to consolidate and take over the existing stressed debt of banks and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realisation.

Khara said thanks to the Insolvency and Bankruptcy Code (IBC), there is an ecosystem which is available relating to the resolution of stressed assets – in terms of resolution professionals and operations & maintenance (O&M) agencies.

The SBI chief observed that when the existing set of ARCs came into existence, the aforementioned kind of ecosystem was not there. As a result, they were picking up the assets and holding on to them, leading to a situation where there was no circulation of money.

“So, I think, once this kind of ecosystem is available and they (ARCs) start taking advantage of the ecosystem and start churning the assets…this will go a long way in terms of salvaging the bad assets in the economy and probably channelise the precious capital in the economy,” explained Khara.

Challa Sreenivasulu Setty, Managing Director, SBI, said in terms of the modalities and mechanics of transfer of assets from banks to the proposed ARC, while the general principle of ₹500 crore and above is what has been indicated, banks are waiting for detailed guidelines to come from the Government of India before they can assess what kind of loans can be transferred.

Ashwani Bhatia, Managing Director, SBI, opined that the new ARC will free up a lot a capital for banks.

“The asset will first move to the ARC…then it moves to an AMC. The asset will be run by an O&M agency for a while and then when the time is ripe and the company is ripe to be sold off, at that time obviously private equity (firms), alternate investment funds and other players can enter and we do hope that the market also develops over a period of time,” said Bhatia.

Published on February 04, 2021

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