Asset Reconstruction Companies (ARCs), having to rustle up more money to acquire bad loans from banks, have knocked at the doors of the banking regulator to seek some leeway in raising resources, especially from foreign investors.
Top Reserve Bank of India officials, ARC representatives, bankers and select private equity players met on Monday to take stock of the surging bad loans in the banking system, the slowdown in the sale of these loans, and ways to tackle the NPA situation.
“The objective of the meeting was to discuss how to bring more capital into ARCs, conclude more transactions and work towards cleaning up bad loans. The RBI has asked the participants to come back with written suggestions on what can be done to improve matters and bring more capital,” said one of the participants.
Among those who participated in the meeting were representatives of Arcil, Edelweiss ARC, JM financial ARC, Invent ARC, State Bank of India, ICICI Bank, HDFC Bank, and Axis Bank. Private equity players KKR, Temasek, and IDFC PE were also present.
This meeting comes in the backdrop of the central bank enhancing the ‘skin in the game’ for ARCs by increasing the cash component required to acquire an NPA from 5 per cent to 15 per cent.
According to bankers, the fall in acquisition of bad loans by ARCs during the last few quarters could be attributed to the RBI tightening regulations last August for asset purchases by ARCs.
ARCs have sought more headroom for foreign investors in shareholdings. Currently, the total shareholding of an individual foreign institutional investor/foreign portfolio investor is capped at 10 per cent of the total paid-up capital.
This cap is proving to be an unattractive proposition for foreign investors, who prefer larger stakes.