All public sector banks intending to be a part of the Asset Reconstruction Company (ARC) have decided to contribute Rs 20 crore as the initial payment towards equity. The ARC will now have the nature of a trust.
It was decided that the total corpus of the ARC will be Rs 350 crore and the amount being initially shelled out by banks as equity in the company will subsequently be raised as and when required.
"A proposal to contribute Rs 20 crore was made to us and we agreed," said V P Shetty, chairman of the Kolkata based Uco Bank. An initial contribution of Rs 20 crore will give the bank an equity participation close to six per cent, which is slated to rise subsequently.
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Commenting on the pattern of execution, United Bank of India chairman, Madhukar said, the ARC will work on the non performing assets (NPA) on a case to case basis. NPAs will be taken up on their probable market values. The ones that will fetch better rates in the market will be taken up first. Only after these are disposed off, will the second tranche of disposal be executed.
In the past, there had been proposals on setting up the ARC with equity from banks in the proportion of their own non-performing assets (NPA), with a limited liability company structure.
Public sector banks have Rs 56,608 crore of NPAs. This figure has been gradually on the rise on account of new slippages.
The government had constituted a working group consisting of representatives from Union finance ministry, the Reserve Bank, the State Bank of India, Bank of Baroda, United Bank of India, Uco Bank and Indian Bank to finalise the modalities.
SBI and its associates had a gross NPA of Rs 21,054 crore as on September 2001, which is 37 per cent of total sticky assets of the 27 PSU banks. Bank of Baroda has gross NPAs of Rs 4,034 crore, while United Bank of India has Rs 1,420 crore worth of sticky assets, Uco Bank has Rs 1,350 crore and Indian Bank Rs 2,379 crore of NPAs.