Chakrabarty lambasts ARCs for killing their own business

Says ARCs have failed in our country because their pricing is the most non-transparent

Senior-most Reserve Bank deputy governor K C Chakrabarty has blasted asset reconstruction companies (ARCs) for being "non-transparent" and squarely blamed them for the failure of the mechanism.

 

"ARCs have failed in our country because their pricing is the most non-transparent. Bring more transparency in the pricing," he said while speaking at the annual Bancon over the weekend here.

 

He said the central bank is all for resolution of bad assets by banks through the ARC mechanism and also offered to resolve any vexed issues.

 

An ARC typically picks up a bad loan or a chunk of them from lenders and sell those assets to other lenders after working on the accounts. This helps banks from not making any mandatory provisions in their books, as such loans once sold do not remain in their books.

 

Arcil, sponsored by State Bank, IDBI Bank, ICICI Bank and Punjab National Bank, was the first ARC to begin operations in the country nearly a decade back.

 

"ARCs are not transparent in pricing as well in their functioning. We need to bring more transparency into the system in general and into the ARCs in particular," Chakrabarty said.

 

"We are not saying that the banks cannot resolve their bad assets through ARCs but it has not taken off," he added.

 

Notably, bad assets jumped to record highs in current fiscal as the economy is traversing through muddy waters.

 

According to NPAsource.Com report, as of the September quarter, net bad loans of 40 listed banks soared 38% to Rs 1.3 trillion.

 

"Net bad assets of the 40 listed banks have jumped 38% to Rs 1,28,533 crore during the first half of this fiscal, from Rs 93,109 crore at the end of the last fiscal, and is likely to crore Rs 1.5 lakh crore by the end of the fiscal," the report said.

 

Out of the total 40 listed banks, 14 banks have reported more than 50% jump in their net NPAs during these six months, the study said.

 

Gross NPAs as of the September quarter stood at Rs 2,29,007 crore, 27% higher when compared to Rs 1,79,891 crore as of March quarter for these 40 listed banks.

 

According to the study, gross NPAs of listed banks have doubled since September 2011, while net NPAs have risen by 140% during the same period.