Q&A with Managing Director and CEO of Asset Reconstruction Company (India) Ltd
After a lull period of two years, Asset Reconstruction Company (India) Limited (ARCIL) is hopeful of acquiring significant portion of Non-Performing Assets (NPAs) of banks in a scenario where NPAs are on the rise and there is pressure on the banks to clean up their books. P Rudran, Managing Director and CEO of ARCIL tells Neelasri Barman in an interview about the changing scenario in sale of NPAs. Excerpts:
What kind of growth in acquisition of assets you are eying for this fiscal?
Last fiscal our acquisitions were less, say much less than Rs 100 crore. ARCIL is now more repaired to acquire more NPAs. According to our assessment, we are better placed in terms of reach, financial resources, expertise, skill-set and manpower. After all, we have about a decade of experience in the field and also varied experience in terms of acquiring and resolving a wide spectrum of NPAs. We plan to invest about Rs 1,300 crore this fiscal for acquiring stressed assets.
How has been the first six months of the current fiscal towards this target of acquiring assets?
I am not too happy with our achievement so far in the first half of current financial year. We had planned to acquire much more than what we did. However, considering the minimal acquisitions that have taken place in the last couple of years as the banks did not offer much NPAs for sale or we could not conclude the deals in respect of the sale process put in place, we have done relatively better. With the change in the economic scenario that is rise in NPAs and deemed pressure in reduction of NPAs, we expect that FY 2013 will be better than previous two years in respect of sale and purchase of NPAs. And a clear picture will emerge by December 2012. We are also working very hard towards by sensitising the stakeholders in a significant manner. Normally, the acquisitions take place in the second half of the year more particularly in the last quarter.
According to you what all factors are facilitating asset acquisition deals this fiscal?
There is a rise in NPA in the banking industry and perhaps it is affecting the holding capacity of the banks. As you know, there are multiple solutions for resolution of NPAs. One such mode is sale of NPAs in bulk to Asset Reconstruction Companies (ARCs). I think, after a lull period now time has come for reviving the market for NPAs. What we observe is the sellers are prepared to accept Security Receipts (SRs) as against "only cash" sales in the past. This is because in case of sale by SR, the seller can get a large share which is not the case with cash sales. When there is a perception difference in pricing, according to me, SR will be a better proposition for the sellers. Both the seller banks and ARCs can make a collaborative effort for recovery under the SR scheme and reap the benefit for each other's advantage.
The main issue in these deals are valuations. How are you tackling that? Do you expect valuations to come down due to rising NPAs?
I do not expect valuations to come down. May be the acceptability can change. Today there is more compulsion for selling NPAs. As you know, the Government is also monitoring the NPA management in banks. As stakeholders and owners of the banks they have genuine concern in the increase of NPAs. I understand that the Government being the majority owner of public sector banks is taking keen interest in recovery of loss assets.
How is your recover business doing (retail as well as corporate)?
When it comes to recoveries, retail brings us regular cash flow. Retail forms less than 10 per cent of our assets under management. It was about Rs 550 crore out of our total assets of Rs 6,009 crore. However, the cash flow stream of retail is steady. Corporate recoveries are bulk and it takes time. The flow is also not even.
But are retail assets becoming NPAs for banks?
It is not the case so much with private banks, but, I believe, public sector banks do have NPAs in their retail portfolio. The retail book in public sector banks is smaller due to which it is not so obvious. The NPAs in retail portfolio of public sector banks will also go up because the susceptibility of retail is very high.
This year the number of cases admitted in the restructuring cell is also going up. Do you expect a significant part of it to turn into NPAs?
We should restructure only those cases where there is potential cash flow available. If the cash flow is not there then it will turn into an NPA and restructuring will prove to be postponing of an inevitable. I think about 25 per cent of the restructured accounts may turn into NPAs. In the past also that has been the trend.
Will you be looking at fund raising for purchasing these assets?
At the moment we are comfortable with our fund position. However, in case of need we may go for investment in our acquisitions by Qualified Institutional Buyers (QIBs). If we get a very large account having a huge potential for revival, then we may go for such investors who have shown interest to invest in such ventures.
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