Citi first foreign bank to pick up ARCIL stake

Citibank is set to become the first foreign bank to pick up a stake in Asset Reconstruction Company (India) Ltd. Karur Vysya Bank will also pick up a small stake in the company.

The entry of new stake holders is the result of a restructuring in ARCIL's equity base following the Reserve Bank of India's directive to raise the equity base of ARCs from Rs 2 crore to Rs 100 crore.

The RBI said securitisation/ reconstruction companies should have minimum net owned fund of not less than 15 per cent of the total financial assets acquired or Rs 100 crore, whichever is less.

The new RBI guidelines pertaining to ARCs will act as an entry barrier for small players to come in. With the sizeable investment required, providing a reasonable return on equity will become a key business driver for ARCs.

ARCIL, which received registration from the Reserve Bank of India on August 29 last year, had started off its operations with a capital of Rs 10 crore.

Subsequently, ARCIL planned to increase its capital to Rs 25 crore with a view to broadbase its equity structure. Now as per the RBI directive, ARCIL will have to hike its capital to Rs 100 crore within three months.

ICICI Bank, State Bank of India and Industrial Development Bank of India, the principal promoters of the ARC, now hold 24.5 per cent each stake in the company.

Their stake will go down to 19.5 per cent each. Punjab National Bank and Union Bank of India now hold 5 per cent each. The other stakeholders include IDBI Bank, Housing Developement Finance Corporation, HDFC Bank, South Indian Bank, and Federal Bank.