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Business News/ Companies / Arcil to go slow in buying bank NPAs
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Arcil to go slow in buying bank NPAs

Bad loan aggregator seeks to consolidate its current assets under management, arrange capital in next one year

Arcil ceded its No. 1 position among aggregators of bad loans to Edelweiss Asset Reconstruction Co. Ltd in the last financial year. Premium
Arcil ceded its No. 1 position among aggregators of bad loans to Edelweiss Asset Reconstruction Co. Ltd in the last financial year.

Bad loan aggregator Asset Reconstruction Co. (India) Ltd, or Arcil, will go slow in purchasing non-performing assets (NPAs) from banks as it seeks to consolidate its current assets under management (AUM) and tries to arrange capital in the next one year, managing director and chief executive officer Vinayak Bahuguna said on Wednesday.

“Lack of capital is the No.1 issue. We are trying to engage with the regulator and the finance ministry and trying to raise capital through the alternative route. We will not buy new loans until we get capital, unless it is at the right price. We will look to consolidate now and take the low-hanging fruit, especially when capital is scarce," said Bahuguna, a former ANZ Grindlays and Standard Chartered Plc banker who joined Arcil last month.

He said an initial public offering (IPO) by Arcil is on the company’s mind, but no share sale is planned immediately.

Arcil ceded its No. 1 position among aggregators of bad loans to Edelweiss Asset Reconstruction Co. Ltd in the last financial year.

Edelweiss had 20,000 crore of AUM in the fiscal year ended March, higher than Arcil’s 11,000 crore, as it aggressively bought bad loans, including stressed industrial assets, over the past couple of years.

In this financial year, Arcil has bought no new bad loans and only added 320 crore to its AUM out of a deal that was executed at the end of the last fiscal, according to Bahuguna.

He said the company will be particularly circumspect in buying more bad loans in the industrial sector which take a long time to recover.

“Our book is currently dominated by what I will call mid- and small companies though we also have a well diversified retail division which has a lot of opportunities to grow," Bahuguna said.

Around 800 crore of Arcil’s AUM are from retail loans, which include mortgages. In the next couple of months, Bahuguna expects to address Arcil’s internal issues linked to human resources and technology even as he seeks to raise fresh capital for future acquisitions of bad loans.

Arcil had a total capital base of about 1,500 crore, which the firm “has long exhausted", Bahuguna said, adding that the last time the company raised capital was more than five years ago.

“We are keen to explore off-balance sheet alternative means to raise funding," Bahuguna said, adding he will raise the issue of tax inefficiencies with these instruments with the Reserve Bank of India (RBI) and the finance ministry.

“The asset reconstruction sector is crying for capital and the best way is to open up the sector for 100% foreign ownership. Meeting pricing expectations of investors and having a strong bankruptcy law are also two other issues that need to be dealt with," he said.

Currently 74% foreign investment is allowed in asset reconstruction companies, but it also includes sub-limits; a single foreign institutional investor cannot hold more than 10% and a single entity cannot buy more than a 50% stake in a company.

Bahuguna said foreign investment rules will have to change if the sector has to attract new investment. “People are waiting to invest, provided it is at a right price and the correct environment is created. Our sector is still learning to walk and is still at the toddler stage. For the last 13 years, the return on equity for the sector is below 6% which means asset reconstruction companies have not got assets at a cheap enough rate. Our turnaround on assets (recovery) has been really poor," Bahuguna said.

Gross NPAs of commercial banks have risen 26% to 3.02 trillion as of March 2015 from 2.40 trillion as of March 2014 as slowing economic growth and stranded projects took their toll on corporate cash flows and made it difficult for borrowers to repay debt.

“Besides the bad loans, there are also $80 billion of restructured loans, some of which may go bad. If wishes were horses, I would say that Arcil needs $2 billion in capital; but I would be happy if I can raise $500 million this year," he said.

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Published: 23 Jul 2015, 12:37 AM IST
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