IndusInd Bank to foray into asset reconstruction

IndusInd Bank is currently in the process of allocating capital for the asset reconstruction business

IndusInd Bank plans to start asset reconstruction business in the next couple of months. The private-sector lender has already firmed up its business strategy and plans to partner asset reconstruction companies (ARCs) for this new business venture.

"I think our new initiative, which is going to launch in the next two months, is about asset reconstruction. We will do asset reconstruction within the bank but in tie-ups with ARCs. The business plan is ready. We believe a huge stock of assets is coming into the ARCs as a business area that we need to look at and we will exploit," Romesh Sobti, managing director and chief executive of IndusInd Bank, told analysts last week.

The weak economic environment as well as stress on credit quality has led to a sharp rise in the sale of bad loans to ARCs in recent months. Last month, banks reportedly sold about Rs 10,000 crore of bad loans to ARCs.

IndusInd Bank itself sold Rs 35 crore worth of loans to ARCs in the January-March quarter. In the previous quarter, it had sold Rs 25 crore. The bank has a security receipt book of Rs 138 crore.

IndusInd Bank will not create a separate subsidiary for its ARC business but will partner existing companies involved in this business. "We are going to set up a business where we will work with distressed debt; so we will acquire either a joint venture with other ARCs or through a project with other ARCs. But we are not going to set up our own ARC," said Suhail Chander, head of corporate and commercial banking at IndusInd Bank.

"These are assets that we think that are resolvable... that we will acquire now then resolve over the next one or two years depending on the time-frame that it takes to resolve the asset," he added.

The bank is currently in the process of allocating capital for this business.

While the Reserve Bank of India has barred ARCs from acquiring bad loans from sponsor banks on a bilateral basis, it has allowed such transactions if the asset is auctioned in a transparent manner, on an arm's-length basis and if prices are determined by market factors.