The high-level committee set up by finance minister Yashwant Sinha to work out the modalities for establishing asset reconstruction companies (ARCs) has recommended that only one such company be set up with an initial equity of Rs 200 crore.
The committee, which submitted its report to S K Purkayastha, additional secretary in finance ministry's financial sector division, today said that all public banks and some financial institutions will chip in equally towards the initial capital. It has also recommended that the ARC should have a capital adequacy ratio of 12 per cent and can tap the equity market to maintain the level.
The committee was of the opinion that only the loss and doubtful assets be transferred to the ARC. Before an account is transferred to the ARC, a notice would be given to the defaulter. These accounts would be valued by a team of valuers from the concerned banks or financial institutions and the ARC too would undertake an independent exercise.
It has also said that in the absence of foreclosure norms, the ARC would use the debt recovery tribunals (DRTs) route to recover the accounts transferred to it. The issue of stamp duty has, however, not been addressed by the committee as state governments are involved, sources said.
The report was submitted to Purkayastha, two days ahead of the November 30 deadline set by the finance minister at a meeting with bank chiefs on November 12. The report would now be vetted by the Reserve Bank of India before the final guidelines are issued.
The committee comprised officials from finance ministry besides RBI executive director M R Umarji, chairman and managing director of Bank of Baroda P S Shenoy, Uco Bank chairman and managing director V P Shetty and United Bank of India chairman and managing director Madhukar.
The first ARC would be in the nature of a pilot project and depending on the success, more such companies could be set up. A separate legislation may be introduced for this, sources said. The first ARC would be set up within the purview of the existing legal framework.
A cabinet note had earlier been prepared by the financial sector division for a separate legislation, which was examined by the law ministry and returned with some queries.
At the end of March 2001, the total non-performing assets (NPAs) in the 27 public sector banks and FIs was estimated at Rs 70,937 crore as against Rs 69,662 crore at the end of 1999-2000. The banks accounted for a chunk of Rs 52,696 crore of the total NPAs.
