Asset reconstruction co on PPP basis fraught with risks:Rajan

Governor Raghuram Rajan today said the RBI is all for helping asset reconstruction companies attract more capital but the plan to float such an entity on public-private partnership basis is fraught with risks.
"On ARCs, I am very much for adding capital to them," Rajan said after delivering the fourth C K Prahlad memorial lecture here.
He also hinted that the RBI is keen to amend a clause which restricts a promoter's ownership in ARCs, which generally takes over-distressed assets from bank and creates value by turning around the asset.
Rajan added that global private equity funds like KKR, which has already announced an investment into an Indian ARC, which possess the risk appetite and the professional management, would be keen to enter the fray as bad assets pile up in the system.

Disclosing that the government is mulling to form an ARC on a public-private partnership (PPP) basis, he warned that such a move is fraught with risks in a situation where the government servants are investigated for malafide decisions.
"Many of these are judgment calls and in an environment of great suspicion, judgment calls tend to be hard to make. Either you get paralysis or paralysis is induced by the exposed investigation on what happens," the Governor said, adding private sector entities are best suited for such play.

He said there is a lot of money waiting to be invested in sectors like these, especially by the foreign private equity majors like KKR.

"There are lots of profitable possibilities once you get the pricing right in the country today, which could be turnaround situations for PEs and so I would welcome more of that, whether domestic or outside," he said.
Meanwhile, Rajan today said that he does not see the need for having a 'bad bank' in the country, which could house all the bad assets.
"The bad bank structure was very useful in cases where there was a liquidating entity. You are not going to put more money in, you are going to take the money out of existing entities and sell them. I am not sure that the bulk of our assets are of that kind," he said.

"Whether we can have an effective bad bank, I don't know," Rajan added.
The total stressed assets in the system, including non-performing assets (NPAs) and restructured ones, have touched the double-digit mark and analysts are expecting further deterioration in the same as the economy is yet to revive.