ICICI Bank may sell 10% Arcil stake

ICICI Bank, which holds 29.58 per cent stake in Asset Reconstruction Company of India (Arcil), is expected to sell 10 per cent stake following the government's decision to open up the foreign director investment (FDI) route for asset reconstruction companies (ARCs).

Two other main promoters of Arcil "� Industrial Development Bank of India (IDBI) and State Bank of India (SBI) "� hold 19.95 per cent stake each.

Source close to Arcil said that ICICI Bank would bring down its stake at the earliest. It is expected to sell part of its stake at a premium to private equity investors which have been keen to pick up stakes in ARCs.

Foreign banks are too keen to enter the turf and the industry expects quite a few foreign banks to join hands with local players to float ARCs. So far foreign banks have been trying to buy out non-performing assets (NPAs) directly from banks participating at NPA auctions.

Arcil has been in operation for about two years now. Another ARC set up by Unit Trust of India is yet to commence operations. Arcil has so far acquired close to 400 NPA accounts worth Rs 18,000 crore at an security receipts (SRs) value of Rs 4,000 crore.

The government has cleared a proposal to allow 49 per cent foreign direct investment in ARCs. However, it is not known whether foreign investors will be allowed to buy the securities receipts issued by the ARCs.

ARCs purchase NPAs of lending institutions at a discount and recover them.

Any recovery made over and above the price at which the loan has been bought helps ARCs earn profit. The need for foreign investment is acutely felt to buy security receipts as ARCs are not cash rich to buy stressed assets upfront.

These receipts are issued by ARCs against the bad loans and redeemed after the recovery process is complete. At present, banks which offload bad assets subscribe to the SRs issued by ARCs.

"The government's decision to allow overseas players to participate in ARCs is welcome. The government should also allow the foreign players to buy the SRs. This will add depth to the market," said a banker.

The 49 per cent cap on FDI is in line with recommendations made by the Reserve Bank of India, though the government had originally mooted a 74 per cent ceiling on FDI in ARCs.

Arcil, the lone ARC currently operating in the country, had also made a strong pitch for 74 per cent FDI in entities formed for reconstructing assets.