Govt Asks Banks To Cough Up Rs 360 Crore For Arc

The government has asked all public sector banks (PSBs) to contribute Rs 360 crore towards the initial equity of Rs 1,400 crore for Asset Reconstruction Corporation of India Ltd, the country's first asset reconstruction company.

Apart from PSBs and financial institutions, UTI Bank and IDBI Bank would also be stakeholders.

Also taking equity position in the ARC, to be headquartered in Mumbai, would be HDFC, Life Insurance Corporation of India, Asian Development Bank and World Bank subsidiary International Finance Corporation, finance ministry officials said.

A formal missive for contributing to the equity of the ARC, to be governed by the Companies Act, was sent to banks on Tuesday, they said.

The State Bank of India is expected to be the largest stakeholder among banks, with the government staying away from contributing to the equity of the company, which would have a non-public sector character.

Sources said the ARC would be working through a trust and would operate at an "arms length distance from the government". They added that the assets from banks and institutions to the ARC would be transferred at a negotiated price which would be arrived at after independent valuations by both parties.

The company would have a dozen directors with two professionals from the banking sector, one each representing the FIs and banks, and one each to be nominated by shareholders who contribute over Rs 100 crore to the ARC's initial paid up capital.

The ARC would initially be headed by an officer on special duty, who would take over as the first full-time chairman of the company. The candidate is, however, yet to be decided.

Sources said that institutions such as ICICI and IDBI would hike their equity to Rs 100 crore over a period of time. Initially, they have been asked to pay Rs 40 crore each, while SBI is expected to pay Rs 100 crore to the initial paid-up capital.

The development comes just weeks before the Budget. In his last two Budget speeches, finance minister Yashwant Sinha had announced the establishment of ARCs.

In November last year he instructed officials and bankers to devise a mechanism for setting up ARCs within the existing policy and legal framework.