 "JM Finnacial, JM Financial logo")
JM Financial Asset Reconstruction Company’s (JMFARC’s) capital adequacy fell below regulatory requirements following a provision of Rs 846.86 crore for expected credit loss on distressed loans in FY24.
The existing shareholders, including promoter JM Financial, will infuse up to Rs 1,000 crore in equity to shore up capital. This is to meet regulatory norms and support business growth, according to JM Financial’s earnings filing with the stock exchanges.
The ARC’s capital adequacy ratio (CAR) fell to 2.91 per cent in March 2024 from 24.67 per cent in March 2023.
ARCs have to maintain at least 15 per cent CAR. The ARC’s net loss for FY24 widened to Rs 942.42 crore from a loss of Rs 154.93 crore in FY23.
The company has recognised expected credit loss aggregating Rs 846.86 crore on fair valuation of investments in trusts and loans. This is due to change in resolution strategy and events subsequent to the balance sheet date, according to notes on the ARC’s profit and loss statement (FY24).
The company declined to comment on queries from Business Standard relating to provision and fund raising to meet capital adequacy norms.
As a consequence of provisioning, the company’s (JMFARC’s) net worth eroded to Rs 592 crore as of March 31, 2024, from Rs 1,533 crore as of March 31, 2023. Its CAR also fell below the regulatory threshold and led to the increase in financial leverage, rating agency ICRA said on the ARC's FY24 performance.
The ARC plans to raise equity capital up to Rs 1,000 crore through a rights issue.
Of this, JM Financial Ltd, which holds 53.6 per cent stake in the ARC, will contribute up to Rs 536 crore and JM Financial Credit Solutions up to Rs 100 crore in the rights issue.
The board of the ARC has already approved the fundraising plan. The assets under management (AUM) of the ARC rose by seven per cent year-on-year (Y-o-Y) to Rs 14,500 crore as of March 31, 2024, from Rs 13,558 crore a year ago. The AUM was Rs 10,936 crore in March 2022, according to JM Financial's analyst presentation.
JM Financial ARC’s cumulative recoveries stood at Rs 2,855 crore in FY24. These recoveries are through sale of assets, settlements and proceedings under the Insolvency and Bankruptcy Code (IBC).
The company follows a co-investment model with strategic partners and financial investors including distressed funds.
The aim is to complete the process of resolution of accounts, which are at an advanced stage and also find value in portfolio companies.
The ARC was confident about meeting its obligations considering the equity infusion and realisation from existing assets, the note of accounts of JM Financial ARC observed.
There will be no impact on the “going concern” principle of the company in the foreseeable future. It would continue to operate its business in the normal course, JM Financial ARC said.
