Arcil says its bad asset purchase halved in FY15 to Rs 2000 cr

The oldest asset reconstruction company Arcil today said its purchase of bad loans nearly halved in the past fiscal year to Rs 2,000 crore as banks demanded higher valuation on stressed assets.
"There was a very slow movement in sale of assets (last fiscal) particularly after the second quarter onwards. We would have bought over Rs 2,000 crore of bad loans in the year as against Rs 4,400 crore in 2013-14," Arcil's outgoing managing director and chief executive OP Rudran told reporters here.
He said banks had put on sale Rs 90,000 crore worth of stressed assets last fiscal but only Rs 20,000 crore of them were sold.

Rudran said the slowdown in sale of bad loans started last August after the Reserve Bank asked ARCs to pay 15 per cent cash upfront as against 5 per cent earlier.
"The new regulation had an indirect effect because the banks did not adjust the valuation of the assets into that," Rudran said.
He said although the demand of higher contribution from ARCs was a good decision, the valuation from the banks never got adjusted.

It could be noted that a state-run lender, which had put on sale around Rs 500 crore worth of stressed assets on sale in the last quarter of FY15, was able to sell only Rs 30 crore of loans, due to lower price offered by ARCs.

The bank is now planning to sell the rest of the bad loans in this year. "We had put on auction our NPAs but were able to sell very minimal amount of bad loans as the prices offered to us were much lower than our reserve price," a bank official had said.
Rudran said for ARCs to thrive, the selling mechanism of bad loans has to be changed.
"When the assets are being sold to ARCs, it has to be a realistic valuation of assets and also proper pricing has to be done. If proper pricing is there, the returns can be better," he added.

He said there was a need to change the legal system, taxation which are applicable of asset reconstruction companies.
"If have to improve the legal system. In DRTs, indiscriminate stays are being granted. Under Sarfaesi, lower courts are not suppose to issue stay orders, but still many lower courts are issuing stay orders. If it is done, recovery, and acquisition will improve," Rudran said.