Asset Reconstruction Companies to scale up operations in Indian banks

• The country’s banking system, with a huge pile of stressed assets, has provided a huge business opportunity for Asset Reconstruction Companies (ARCs) in India.

• The primary reasons for spurt in stressed assets include aggressive lending practices, wilful default, loan frauds, corruption in some cases, and economic slowdown.

• Private banks have been the most aggressive on asset sales. Public sector banks lagged in asset sales, mainly owing to large haircuts and various management issues.

• During 2017-18, the acquisition cost of ARCs as a proportion to the book value of assets increased, indicating better realisations by banks on sale of stressed assets.

• On the positive side, some PSBs have strengthened in-house expertise for recovery of non-performing assets, spurred by the need for faster resolution.

• The sales of stressed assets to ARCs by both PSBs and PVBs witnessed deceleration during the first six months of the current financial year (2018-19).

• The share of subscriptions by banks to security receipts (SRs) issued by ARCs declined to 79.7 per cent by end-June 2018 from 82.7 per cent a year ago. 

• Since April 1, 2017, the provisioning norms have been made progressively stringent in order to reduce their investments in SRs and incentivise ARCs and other financial institutions to bring in more capital.

• According to the association of ARCs in the country, 28-Member asset reconstruction companies are registered with the Reserve Bank of India.

• Banks have reported rise in NPAs in their domestic operations from Rs 3.09 trillion in March 2015 to Rs 9.62 trillion in March 2018 and later, a marginal dip to Rs 9.46 trillion September 2018.