Tamal Bandyopadhyay: Damaged goods' salesman

BACKSTAGE

In early 2003, Rajendra Kakkar, then managing director of State Bank of Hyderabad (SBH), put his hat in the ring for the top job at the Asset Reconstruction Company (India) Ltd (Arcil) and was chosen over another MD of an SBI associate bank, a senior official of Asian Development Bank and a seasoned economist. What tilted the case in Kakkar's favour was his operational experience as a banker and his acumen for legal niceties. A career banker with an MA and LLB degree, Kakkar has never been in planning. He has spent 35 years in banking operations heading branches, zones and finally a bank. He had one year to retire at SBH when he formally took over the reins at Arcil in June 2003.

Today, he may boss over only 37 employees, which is less than one-third of 1 per cent of the 13,000 strong work force of SBH, but in about two years, has bought out close to 15 per cent of the Indian banking system's non-performing assets.

So far, Arcil has bought Rs 17,000 crore worth of bad assets from 26 banks "" a principal debt of Rs 8,100 crore and accumulated interest of Rs 8,900 crore. These assets relate to 374 borrowers. While ARCs have been given five years for NPA resolution, Arcil has already settled quite a few cases. The list of settlements (where assets were acquired and sold and banks were paid their dues) includes 32 small cases involving Rs 300 crore and four large cases for Rs 600 crore. Kakkar is confident that by March next year Arcil will clear nine more large cases involving Rs 2,000 crore.

What's more, in most of these cases, Arcil has realised a higher value than its acquisition price. In four large cases, the upside is 14 per cent while in small cases the upside is about 67 per cent. The list of cases that have been settled includes Saurashtra Chemicals, Borosil Glass, Orient Vegetax Pro and Kappi Tubes. The Ahemdabad-based Core Healthcare case is being resolved. It is also in the process of locating a buyer for Daewoo Motors assets and the OCM brand among others.

Typically, Arcil buys stressed assets at about 75 per cent discount and instead of paying money upfront, it offers security receipts (SR). The subscribers to the SRs are the banks themselves. In effect, they have replaced their non-standard loans with standard investments. Their treasury divisions buy the SRs that generate cash after the actual assets are sold.

However, Arcil has not been able to buy the entire 100 per cent of all assets as all members of a lenders' consortium are not willing to hand over the NPAs to Arcil. This is because they are not comfortable with the low valuation at which the assets are sold. Kakkar feels that this problem will be solved and a benchmark for valuation will evolve when more ARCs are set up.