Arcil to offer sops to close bad loans

A few months from now, loan defaulters may find themselves free from the threat of the recovery goon squads that some banks hire. Instead, they could be meeting a polite official offering them some sort of incentive to close the bad loan.

For instance, home defaulters could find themselves being offered, say, a couple of years' rent as an incentive to move to another house. The mortgaged property would then be sold to recover the loan.

Such innovative solutions to loan defaults, common in developed countries, could soon be available in India.

Mumbai-based Asset Reconstruction Company (India) Ltd (Arcil), the country's first asset reconstruction firm launched in 2003, is creating scalable corporate infrastructure and hiring specialists to extend its business to retail or personal loans.

Arcil specialises in buying sticky corporate loans from banks and providing innovative solutions for restructuring them with debtors. Following interest evinced by some banks, the company now sees huge potential in retail loan portfolios.

"The outsourcing of retail loans recovery needs is a product for the growth of the economy," said S Khasnobis, managing director and CEO, Arcil.

"Selling sticky loans frees banks of the reputational risks that loan recovery inevitably attracts. It also takes bad loans off their balance sheet quickly since such loans typically take years to settle," said the executive director of a public sector bank.

Recently, banks have seen the proportion of bad home loans almost double to 3.5 per cent of gross non-performing assets or sticky loans.

Arcil has so far bought around Rs 22,000 crore bad loan taken by companies for close to Rs 5,000 crore.

The acquisition price is about 23 per cent of the total dues. The margins in secured loans such as home loans would be low, but the risks involved in recovery would also be much lower than a sticky loan to a company.