UTI ARC ropes in four foreign banks

Asrec India Ltd, the asset reconstruction company set up by UTI Mutual Fund, has roped in four foreign banks.

"Citibank, Standard Chartered Bank, Deutsche Bank and ABN Amro have taken stakes," said M Damodaran, chairman and managing director, UTI Mutual Fund. "They were roped in because of their experience in handling non-performing assets through asset reconstruction companies world over."

He was in town to sign a tie-up with Allahabad Bank.

Sources close to the development said that stakes taken by these companies varied between five and 15 per cent, with UTI holding the majority 51 per cent.

Asrec has also roped in Allahabad Bank and Bank of India which subscribed around 10 per cent and 15 per cent stake, respectively, in the ARC.

Asrec was being set up with a Rs 5 crore of authorised capital base for which it has already made an application to the Reserve Bank of India and is expected to commence operations in a months. The Life Insurance Corporation of India is also likely to take a substantial stake in the company.

Asrec would primarily concentrate on the non-performing assets (NPAs) held by the UTI and UTI Mutual Fund. It will also be looking at NPAs held by sponsors, banks and financial institutions and mutual funds to undertake securitisation and reconstruction activities.

Asrec would take over the assets at a mutually agreed price to aggregate the debt of borrowing companies in order to get majority stake and effectively work out securitisation and reconstruction activities.

Damodaran said that the UTI Mutual Fund did not intend to transfer boderline NPA cases where there was possibility of recovery with a little softening of interest rates.

He provided the example of steel industry and said that the textile industry was also on the verge of turning around.

At UTI, gross NPAs were around Rs 450 crore, a portion of which will be transferred to Asrec.

Allahabad Bank chairman O N Singh, when asked what was the level of discount that the bank was ready to forego while transferring bad assets to the ARC, said, even a 20 per cent return on bad loans would add to our bottomline.

"We are looking at the ARC as an independent profit Centre, hence the discounts reached at would have to be arrived at mutually so that both the parties gain something out of the process," he explained.