There has to be an alignment of interest, says Arcil’s Vinayak Bahuguna | Business Standard News

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‘Banks form the majority of the lenders, and it would appear that they will push through whatever they think is fit for themselves and not necessarily for everybody else, he says

Vinayak Bahuguna Chief executive officer and managing director, Arcil

The Asset Reconstruction Company of India (Arcil) has resolved over Rs 78,000 crore worth of non-performing assets acquired from banks and financial institutions. The country’s first asset reconstruction company (ARC), set up in 2002, feels that entities like it will come into sharper focus in the days ahead. Vinayak Bahuguna, chief executive officer (CEO) and managing director (MD), spoke to Raghu Mohan. Edited excerpts:

On the lack of transfers to asset reconstruction companies (ARCs) of late

I am aware of the Central Bank of India having put up some portfolio for sale, which we are examining. But that apart, there has been very little to my mind which has been put up for sale in the last three months. There was an opportunity for banks to do things in March, but we lost that because of the lockdown due to Covid-19.

On the poor transfers to ARCs even as talk of a bad bank gains ground

It’s a question of priorities. I think most of banks’ attention has been centred around the new government initiatives. And some of them are very large initiatives. Then, the Insolvency and Bankruptcy Code has been suspended. In terms of a clean-up, things have slowed down. Is it because banks feel that there is no interest in the market or the ARCs don’t have the money? Or that foreigners who were in the market no longer seem to be there? I don’t know. It could be a combination of all these things.

On whether banks’ have a lower commercial sense

No, but the commercial sense is not applied. Because the motivation and the thing that is driving it is balance-sheet management. And that leads to sub-optimal decisions at the account level, which is why the chances of success are reduced. Now go back in time — why did corporate debt restructuring fail? Because banks really didn’t spend time looking at the different counterparties involved in the financing arrangements of borrowers. So, there was no alignment of interest.

Banks typically haven’t been very good at this because of the simple reason that when they look at these arrangements, they don’t really spend so much time on the underlying business and the prospects, as much as they spend in terms of wondering and looking at what it means for them in terms of the balance sheet.

On widening inter-creditor agreements to include all financial stakeholders

It is a fair point. The objective of banks is to protect their books. So, they may be willing to take deep restructuring, for example, spread over several years whereas the ARCs or others may have a different objective. They see it as investments to be farmed over a given period of time, with specific returns embedded in that thinking process. So, I think that could be the inherent conflict. And because banks are the majority of lenders, it would appear they will push through whatever they think is fit for themselves and not necessarily for everybody else.

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