ARC arm mulls raising over $1.3 b for NPA purchases
Far from seeing the National Asset Reconstruction Company Ltd (NARCL), the so-called bad bank, as a rival, Edelweiss Asset Reconstruction Company Ltd (EARC), currently India’s largest ARC, wants to buy stressed assets from it.
Edelweiss Alternative Asset Advisors (EAAA), EARC’s sister company, is exploring the possibility of raising funds, exceeding the $1.3 billion (about ₹9,200 crore) it raised about two years back, to invest in stressed assets to turn them around.
Raj Kumar Bansal, MD & CEO, EARC, told BusinessLine that EARC and EAAA can join forces to buy some of the assets from NARCL even as they observe the arm’s length principle.
EARC can invest 15 per cent of the acquisition price of the stressed asset, with EAAA investing 85 per cent. EARC and EAAA are subsidiaries of Edelweiss Financial Services Ltd.
Faster debt aggregation
Bansal said the setting up of NARCL augurs well for all ARCs as it saves them a year that it usually takes to aggregate debt from multiple lenders. There are 28 ARCs registered with the Reserve Bank of India.
NARCL has been set up by banks to aggregate and consolidate stressed assets for their subsequent resolution. Public sector banks (PSBs) will have 51 per cent ownership in NARCL, with Canara Bank holding 12 per cent stake, as its sponsor. To begin with, banks have identified 22 fully provisioned stressed accounts, including VOVL Ltd (wholly-owned subsidiary of Videocon Industries), Amtek Auto, Reliance Naval and Engineering, Jaypee Infratech, Castex Technologies, GTL, Visa Steel, and Lavasa Corporation, aggregating ₹82,500 crore, for transfer to NARCL.
NARCL will acquire stressed assets, aggregating about ₹2-lakh crore, from lenders in phases. It will acquire these assets by paying 15 per cent of the acquisition value in cash and 85 per cent as security receipts (SRs).
Bansal, who oversees Assets Under Management aggregating about ₹43,000 crore, said: “It is good for us if they (NARCL) aggregate the debt because then we can buy from them. We don’t have to deal with 20 banks. Depending on the quality of the asset, where there is reasonable scope for us to resolve and where, maybe, we can work with the borrower, we can buy it from NARCL.”
In the first quarter of the current fiscal, EARC acquired assets worth about ₹2,100 crore by deploying ₹380 crore. EAAA had AUM aggregating about ₹30,000 crore as at March-end 2021.
The RBI has also allowed loan exposures classified as fraud to be transferred to ARCs. This comes in the wake of banks reporting frauds aggregating ₹3.95-lakh crore between FY19 and FY21. Stressed loans, which are in default for more than 60 days or are classified as non-performing assets, can be transferred to ARCs.