After buying bad loans at breakneck speed for a about a year, asset reconstruction companies (ARCs) are expected to moderate the growth in their assets under management.
With a sharp rise in non-performing loans, commercial banks began to put a large chunk of these on the block, an opportunity seized by ARCs. The assets under management of ARCs rose fourfold to Rs 42,000 crore in the year ended June 30 this year, according to rating agency CRISIL.
The assets under management of ARCs are expected to touch Rs 55,000 crore by June-end, 2015.
CRISIL said through the next 12 months, the growth was expected to moderate to 30 per cent, owing to various changes in norms for ARCs, announced by the Reserve Bank of India on Tuesday.
On Thursday, the central bank asked ARCs to become members of at least one credit information company and periodically report data on borrowers to those.
Pawan Agrawal, senior director, CRISIL Ratings, said amendments to ARC regulations would also improve the recovery prospects of these companies. Membership in the joint lenders’ forum, a lower threshold for consent to enforce the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, more time to conduct due diligence and greater disclosures would enhance transparency and lead to better resolution of bad loans, Agarwal added.
In the near term, ARCs will find it challenging to align pricing with the expectations of asset-selling banks, as the minimum investment requirement has been increased significantly.
In the long term, however, the new rules will boost price discovery.
Other challenges, too, await ARCs---their capital needs will increase because the minimum investment requirement for security receipts has been tripled to 15 per cent. And, they have to increase the value they bring to the resolution process.
Though ARCs have reconstructed several large accounts and demonstrated an ability to recover funds through asset sales, recovery levels haven’t been up to potential---the cumulative redemption ratio of security receipts for the 10 years ended June 2013 stood at 53 per cent, CRISIL said.
With a sharp rise in non-performing loans, commercial banks began to put a large chunk of these on the block, an opportunity seized by ARCs. The assets under management of ARCs rose fourfold to Rs 42,000 crore in the year ended June 30 this year, according to rating agency CRISIL.
The assets under management of ARCs are expected to touch Rs 55,000 crore by June-end, 2015.
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Now, the growth is expected to be moderate and the ambitious pricing, frequent till June-end, is expected to give way to a reasonable and rationale approach for bidding. The focus would be on raising capital and funds for running business and strengthening recovery functions, including teams of specialists, said the chief of a large ARC, backed by commercial banks.
CRISIL said through the next 12 months, the growth was expected to moderate to 30 per cent, owing to various changes in norms for ARCs, announced by the Reserve Bank of India on Tuesday.
On Thursday, the central bank asked ARCs to become members of at least one credit information company and periodically report data on borrowers to those.
Pawan Agrawal, senior director, CRISIL Ratings, said amendments to ARC regulations would also improve the recovery prospects of these companies. Membership in the joint lenders’ forum, a lower threshold for consent to enforce the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, more time to conduct due diligence and greater disclosures would enhance transparency and lead to better resolution of bad loans, Agarwal added.
In the near term, ARCs will find it challenging to align pricing with the expectations of asset-selling banks, as the minimum investment requirement has been increased significantly.
In the long term, however, the new rules will boost price discovery.
Other challenges, too, await ARCs---their capital needs will increase because the minimum investment requirement for security receipts has been tripled to 15 per cent. And, they have to increase the value they bring to the resolution process.
Though ARCs have reconstructed several large accounts and demonstrated an ability to recover funds through asset sales, recovery levels haven’t been up to potential---the cumulative redemption ratio of security receipts for the 10 years ended June 2013 stood at 53 per cent, CRISIL said.