The framework for the asset reconstruction company (ARC) which the government plans to set up with equity participation by state-owned banks is expected to be ready by November 30.
The ARC will take over their non performing assets of public sector banks and aid in the recovery of their sticky loans.
M R Umarji, excutive director of Reserve Bank of India is heading a high level working group which will draw up the blueprint for the ARC.
The chairmen and managing directors of five weak banks-- UCO Bank, United Bank of India, Dena Bank, Indian Bank and Allahabad Bank, are mebers of the commitee.
At a meeting of a high-level committee comprising finance ministry and Reserve Bank of India officials and the five CMDs here today, various proposals for setting up ARCs within the present legal framework ware discussed today.
Sources said that banks were of the opinion that it would be better if they were themselves the owners of the first ARC. However, a decision on the number of ARCs was not taken. The committee is slated to meet again on November 28 to finalise the contours of the blueprint for setting up ARCs.
Finance minister Yashwant Sinha during his meeting with public sector bank chiefs on November 12 had set that the first ARC in about three weeks. He had also said that ARCs would be set up within the existing legal framework.
Earlier, the banking division of the finance ministry had proposed that a separate bill be introduced for setting up ARCs in India.
A Cabinet note was also sent to the law ministry which sent it back to the finance ministry with some queries.
Bankers said that the ARCs would only be able to go for increased focus on recovery if the government puts in place the much-awaited foreclosure norms.
Banks chiefs who attended today's meeting have, however, sought some clarification on the high stamp duties. It is also not clear whether the ARCs would be set under the Companies Act or would be government by the Banking Regulations Act.
Two pilot ARC projects on this will run in Maharashtra and Karnataka -- the state governments with lowest stamp duties. This is being done as transfer of assets to an ARC attracts stamp duty.
Bankers said that the ARC, in which the five weak banks will have proportionate stakes, could have a two components -- an asset reconstruction fund and an asset management company each having an average life span of seven years. It will be set up soon without any legislative amendments as state governments are not willing to pare stamp duities.
The ARC will buy the impaired loans from the weak banks at a discount. It will be a profit-oriented operation and its aim will be to recover from the acquired assets more than the price paid for it.
