Home / Companies / News /  ARCs look to pick up stressed loans left out of recast

Companies specializing in turning around stressed loans, are betting on assets left out by a central bank scheme which allows easier repayment terms for companies and individuals affected by covid-19.

Asset reconstruction companies (ARCs) expect bad loan sales to rise once banks complete the preparations for the one-time debt recast scheme by 31 December. According to executives, lenders will have to clean their books before the fiscal year-end and there could be a sense of urgency from January 2021. “While this (recast scheme) ensures that only the affected borrowers can benefit from this restructuring, it will also be helpful for ARCs. I believe, there will be several assets left out of the scheme, and banks will have to consider either a recast without the NPA classification benefit or outright sale to ARCs," said Sanjay Tibrewala, chief executive, Phoenix ARC.

According to Tibrewala, five to six auctions have taken place since August when banks started putting corporate accounts on sale. “The traction is slow, but it is gradually gaining pace."

Banks are currently in the process of framing policies for the massive debt recast exercise. State Bank of India (SBI), HDFC Bank and Canara Bank have given information for customers under frequently asked questions (FAQs).

Sale of bad loans to ARCs is expected to gather momentum after 31 December, the last date of the invocation of resolution relating to covid-19 stress, said Hari Hara Mishra, director, UV ARC Ltd. “Lenders are likely to put up bad loans for sale after exploring in-house resolution measures. However, valuation and price expectation mismatch will continue to be a challenge for transaction closures." he added.

Experts said though recent transactions have been concluded on cash basis, that could not be possible if large numbers of stressed assets enter the market. Others said the suspension of the Insolvency and Bankruptcy Code (IBC) for nine months from March will push lenders towards ARCs.

“With the suspension of fresh proceedings under IBC for defaults post-25 March and the other recovery options being time consuming, banks would see ARCs as a viable alternative," said Aastha, partner at law firm Argus Partners.

Shayan Ghosh
Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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