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Asset reconstruction biz in boom

Asset reconstruction companies (ARCs) typically buy non-performing assets (NPAs) at a discount from banks to clean up their balance sheets and run them as separate businesses.

india Updated: Mar 22, 2009 20:54 IST
Falaknaaz Syed

With bad loans on the rise, the asset reconstruction business is getting crowded. Asset reconstruction companies (ARCs) typically buy non-performing assets (NPAs) at a discount from banks to clean up their balance sheets and run them as separate businesses.

Several corporates and banks will be launching asset reconstruction companies in the coming months, according to industry sources and analysts.

These include Standard Chartered Bank, Edelweiss Capital and Yes Bank teaming up with three public sector banks. NPAs are loans that stop yielding interest on account of defaults. The gross NPAs of commercial banks at the end of March last year was at Rs. 56,435 crore, up 12.2 per cent from a year earlier. The figure is estimated to touch Rs. 74,000 crore by the end of this month.

Rapid growth in loans and declining foreign investment could trigger NPAs, says a report prepared by consulting firm Deloitte. Yes Bank, which has already got an in-principle approval from the RBI, will be launching its company in partnership with Bank of Baroda, Union Bank and Bank of India, with the three partners collectively holding 33 per cent and Yes Bank 30 per cent in the firm to be launched sometime in 2009-10.

“We are in talks with a foreign investor who will hold another 30 percent while the remaining 7 percent will be with the company’s management and employees,” said Rana Kapoor, Yes Bank’s managing director.

Vinayak Bahuguna, managing director of the Alternative Investment Group at Stanchart, said his bank will approach the RBI
by the end of 2009 for approval to set up an ARC.

Edelweiss Capital is already awaiting RBI approval.

These new players will be in addition to several that are already in operation. These include the Phoenix ARC floated by Kotak Mahindra Bank, and Reliance ARC promoted by Pegasus and Anil Ambani’s Reliance ADAG group, UTI-promoted ASREC, International Asset Reconstruction Company (IARC), the IFCI-promoted ACE and Pridhvi Asset Reconstruction and Securitisation Company.