Former SBI Caps managing director and currently State Bank of India corporate development officer and deputy managing director, Birendra Kumar, is tipped to be appointed the first CEO of the country's first asset reconstruction company (ARC).
Multilateral agencies like the World Bank and the Asian Development Bank (ADB) are expected to pick up stakes in the ARC. The ARC will be set up before the end of the current fiscal as the government is drawing up the blue-print for legislative changes to ensure asset transfers between sick banks and the proposed ARC.
According to highly placed sourcess, the multilateral agencies will pick up stakes in the proposed ARC as part of their support to financial sector reforms. These agencies have picked up stakes in ARCs in Korea and Thailand.
"Apart from supporting reforms through equity participation, the investment will also yield profit in due course. (Several) Rounds of discussions have taken place. ADB and the World Bank apart, the Commonwealth Development Corporation, SBI, Unit Trust of India, Industrial Development Bank of India, ICICI, Housing Development Finance Corporatation, ICICI Bank as well as IDBI Bank will pick up stakes," sources said.
These institutions collectively will hold around 60 per cent stake in the ARC and the rest will be held by a clutch of nationalised banks. "The proposed ARC will be free from the government control. It will be a board-driven company where the management will have the last word on policies and pricing of assets. Investigating agencies like CBI and CVC will not cast shadow on the ARC," sources said.
To start with, the ARC will have a paid-up capital of around Rs 200 crore which will be raised to Rs 500 crore over the next two years. It will resort to market borrowing and later take the securitisation route to expand the asset base. "On a 1:1 debt equity ratio, the ARC can have a fund of Rs 1,000 crore which can be leveraged to buy out Rs 3,000 crore worth of sticky assets.
Globally, collateralised sticky assets are sold around 65 to 72 per cent discount on the face value (principal plus interest) of the loan," sources said. The clean (non-collateralised) doubtful loans are sold to ARCs at around a 95 per cent discount.
"Most of the banks have made provisions to the extent of 40-45 per cent of the secured bad debt. If they can recover between 30 and 35 per cent of the face value of the asset (from the ARC), they will end up taking a knock of around 20-25 per cent. This is in tune with international practices," a senior banker pointed out.
Sources familiar with the development said the ARC will be set up before the end of the current fiscal with the government promulgating an ordinance on the transfer of assets. "The government is expected to promulgate an oridnance which will enable banks to take possession of (mortaged) assets without resorting to legal recourse on the lines of state finance corporations which take over assets under Section 29 of SFC Act," sources said.
The debt recovery tribunals (DRTs) are also expected to set up special benches to speedily dispose off cases handled by ARCs. "To start with, the ARC will buy out sticky assets from some of the weak banks on a `as is where is' basis and the pricing will depend on the quality of collaterals and loan documentation as well as profile of the clients. If the experiment succeds, we may see more ARCs in the private sector," sources said.
