Arcil, foreign banks to team up at NPA auctions

The Asset Reconstruction Company of India (Arcil) is planning to team up with foreign banks to participate at the auction of non-performing assets (NPAs) held by domestic banks.

The rationale behind these prospective joint ventures is that these multinational banks having Indian books do not possess ground-level capabilities to resolve NPAs of other banks. On the other hand, Arcil does not have liquid cash to participate in the forthcoming auctions of sticky assets by banks.

Some banks such as State Bank of India (Rs 2,000 crore), ICICI Bank (Rs 1,500 crore) and HSBC (Rs 600 crore) are calling for cash offers and asset reconstruction companies are expected to cater to these demands, but the hitch is that they do not have the required capital to buy the assets.

Arcil managing director and CEO Rajendra Kakker said, "This arrangement would be a win-win proposition for both foreign banks and Arcil. Foreign banks can use our expertise for NPA settlements and foreign banks will help us meet our cash requirements for these settlements. Deals with foreign banks are expected to be finalised within a couple of weeks."

Conventionally, ARCs issue security receipts (SRs) against purchase of NPAs from banks. But with the Reserve Bank of India unveiling guidelines on sale and purchase of NPAs between banks, ARCs cannot dole out cash for the purchase of NPAs. This also is likely to hit the ARCs' business as banks prefer cash deals to SRs issued by ARCs.