Allahabad Bank, BoI set to pick up stake in UTI ARC

Allahabad Bank and Bank of India (BoI) will subscribe to 10 per cent and 15 per cent stakes, respectively, in ASREC India Ltd, the asset reconstruction company being set up by UTI Mutual Fund.

"We have decided to pick up a 10 per cent stake in the company and our board has recently passed the decision," said O N Singh, chairman and managing director, Allahabad Bank.

ASREC, in which the Unit Trust of India (UTI) will hold a 51 per cent stake, is being set up with a Rs 5 crore authorised capital base for which it has already made an application to the Reserve Bank of India. It is expected to commence operations in a month's time.

The Life Insurance Corporation of India is also likely to take a substantial stake in the company.

On the level of discount Allahabad Bank was ready to forego while transferring bad assets to the ARC, Singh said even a 20 per cent return on bad loans would add to the bottomline.

"We are looking at the ARC as an independent profit centre, hence the discounts reached at would have to be arrived at mutually so that both the parties gain something out of the process," he said.

BoI officials could not be contacted for comments. ASREC would primarily concentrate in non-performing assets (NPA) resolution of assets held by UTI and UTI Mutual Fund.

It will also be looking for NPAs held by sponsors, banks and financial institutions and mutual funds to undertake securitisation and reconstruction activities.

ASREC would take over the assets at a mutually agreed price to aggregate the debt of borrowing companies in order to get majority stake and effectively work out securitisation and reconstruction activities.

Talking on specific issue of asset transfer to an ARC, the chairman said stamp duties and registration charges have acted as a dampner in certain states such as West Bengal and Jharkhand where stamp duties are high.

Despite the fact that the West Bengal government has reduced stamp duty on transfer of assets to ARC to 0.1 per cent, non-existence of any cap on the total value of stamp duty and a high 3 per cent registration charge has resulted in delay in asset transfer in these two states.

The scenario is, however, different in states such as Maharashtra and Gujarat where the duty is not only low at 0.1 per cent, the total cap on duty is Rs 1 lakh while the registration charge is Rs 500.