SBI, IDBI capital mkt arms to be roped in for asset rejig

Commercial banks plan to involve restructuring agencies such as SBI Caps and IDBI Capital Markets to examine the feasibility of forming a special asset reconstruction company (ARC) to manage and revive large-size infrastructure-stressed loans.

On Wednesday, the Union government held discussions with ARC representatives and some bankers on the proposal. A senior executive with Indian Banks Association (IBA) said the pressure on balance sheets of public sector banks (PSBs) due to provisioning for stressed loans is immense. Any viable step to take the burden off their books will help them to concentrate on business and lend when the economy turns around.

The bankers group would discuss the idea with agencies like SBI Caps and IDBI Capital Markets, which prepare packages for companies referred to Corporate Debt Restructuring. The assessment is expected to be over in about four weeks, an IBA executive said.

A chief executive of an ARC who attended the meeting with the finance ministry said this would need a lot of capital from banks and a clear policy dispensation. Multilateral agencies would like to invest in such a special purpose entity.

One senior public banker said before going full steam, a few cases should be entrusted with the ARC. Learning from this can help to hand over more projects to ARCs.

These efforts should lead to resolution of stress. Hence, the revival efforts have to be backed by policy reforms and firm decisions by the government in areas like fuel linkages to power plants and clearances, the executive said.

Last month, the Federation of Indian Chambers of Commerce and Industry had presented a proposal for a National Asset Management Company (Namco). It had proposed that PSBs hold up to 49.9 per cent stake only, so that the Namco would remain a private sector entity.

It would have minimum Net Owned Funds of Rs 2,500 crore. In addition to equity, Namco will raise capital by issuing long-term bonds of Rs 2,500 crore, subscribed by the banking sector. Namco will, thus, target a total capital of Rs 5,000 crore. This capital base will enable it to acquire NPAs, restructured loans and other potential stressed assets valued at Rs 100,000 crore. It will acquire loans at a price to be determined by an independent valuer. These ARCs will be allowed to issue security receipts for up to 12 years.