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| Asset reconstruction companies demand fresh norms on NPA sales |
| Shilpy Sinha / Mumbai Sep 04, 2008, 01:07 IST |
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Asset reconstruction companies (ARCs) have asked the Indian Banks’ Association (IBA) to formulate guidelines for the sale of non-performing assets (NPA) by banks.
ARCs typically purchase the assets at a discount, which could be as high as 75 per cent of the original vale of the loan. The discount varies depending on how long the borrower has not been paying interest.
An IBA official said there was no consistency in the method of valuation and pricing of such assets, whether the payment is done in cash or by way of issue of security receipts, or both.
He said the whole idea behind setting up a working committee to look into the issue is to lay down certain standards to be observed by banks during the auction of assets to ARCs. All asset reconstruction companies and banks are looking for uniformity in the system for pricing and valuation.
Although the Reserve Bank of India (RBI) has issued guidelines on sale of loan assets to ARCs, banks are following their own norms and procedure, he said. “Some of the issues will be addressed by the RBI’s intervention and the rest, we will take up with the government for amendment to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act,” said IBA’s Chief Legal Advisor MR Umarji. The norms are expected to be put in place over the next two-three months.
According to Virendra Kumar, CEO, International Asset Reconstruction Company, many auctions could not take place because of poor valuations or lack of information. There is a need for collection of information on assets, funds involved in the overall transaction and the process involved in sale, he said.
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