Insolvency and Bankruptcy Code an opportunity for ARCs: Arun Jaitley

New Delhi: Insolvency and Bankruptcy Code (IBC) and the government’s emphasis on resolution provide opportunity for asset reconstruction companies (ARCs) as stressed assets still have inherent value, finance minister Arun Jaitley said.

During discussions with ARCs and private equity firms (PE) on Saturday, he said these non-performing assets (NPAs) were essentially productive assets which, if turned around, would not only create additional jobs but also contribute to national output. For this to happen, timely interventions, transparent price discovery and right management were required, he said.

The internal advisory committee (IAC) of the Reserve Bank of India (RBI), after its meeting on 13 June, had recommended 12 accounts totalling about 25% of the gross NPAs of the banking system for immediate reference under Insolvency and Bankruptcy Code. These accounts have an exposure of more than Rs5,000 crore each, with 60% or more classified as bad loans by banks as of March 2016.

The 12 accounts alone constitute a quarter of over Rs8 trillion of NPAs. Of the total, Rs6 trillion are with public sector banks. Pointing out various legislative and regulatory changes made over the last 18 months, he said, these have created an enabling and supportive operational environment for ARCs and for takeover of stressed assets by PE firms/special situation funds.

“These include 100 per cent ownership by sponsors, higher ceiling of 100 per cent for FDI in ARCs, pass through status to ARC trusts for income tax, exemption from stamp duty, enabling trading of security receipts etc,” he said.

“Resultant collaboration between banks, ARCs, PE, Asset Management Companies and resolution professionals could pave the way to a virtuous cycle of fresh investments, new jobs and additional demand,” he said.

As a result, a number of new ARCs have sought and obtained registration during recent months. The increasing number of players in the market was indicative of an increasing interest in the sector but also presented an opportunity for banks to offload stressed assets before fully provisioning for them, he said.

Meanwhile, some of the players suggested that sale of project loan by a consortium instead of individual banks selling their loan account could be a much more effective way of ensuring debt aggregation in a timely manner.