Arcil plans to raise ₹500 crore via an asset reconstruction fund to acquire stressed assets from banks. This comes in the backdrop of the Reserve Bank of India asking asset reconstruction companies to get “more skin in the game”.
In August last, the central bank had tightened regulations for asset reconstruction companies (ARCs), mandating them to increase investment in security receipts (SRs) issued by them against the assets acquired from 5 per cent to 15 per cent.
Shell out moreThis led to asset sales coming down as ARCs, which are in the business of resolution of bad loans through acquisition from Indian banks and financial institutions, had to stump up more cash.
With banks and financial institutions collectively putting bad loans aggregating ₹44,906 crore on the block to clean up their books in the first half of the current financial, compared with ₹30,413 crore in the year ago period, ARCs are gearing up to buy them, albeit at lower valuations.
According to P Rudran, MD and CEO, Arcil has opened its third asset reconstruction fund and qualified institutional buyers such as banks, insurance companies and mutual funds can invest in it.
Arcil has floated two asset reconstruction funds — the first fund in 2007 (with a corpus ₹250 crore) and the second fund in 2011 (with a corpus of ₹200 crore).
“We normally invest about 20 per cent of the corpus of an asset reconstruction fund. That money is used for acquiring assets from banks and financial institutions.
“The fund is in the nature of a trust and investors get SRs against their investments. The SRs will be redeemed as and when the recovery takes place,” said Rudran.
Open-ended fundsTypically, these funds are open-ended (can be kept open for subscription up to a year) and fetch returns in the region of 18-20 per cent, he added.
Though private equity firms too have evinced interest in investing in the funds, Rudran said their expectation of returns is very high at 20-25 per cent.