ARCs: Emerg­ing Avatar

Assocham Bulletin - - ECONOMY -

As­set Re­con­struc­tion Com­pany ( ARC) of­fers ser­vices to ac­quire Non●Per­form­ing As­sets ( N PAs) of the banks and other fi­nan­cial in­sti­tu­tions. As the role of ARCis very vi­tal in terms of re● or­ga­ni­za­tion of the bank debt, it is strictly reg­u­lated by the RBI as an NBFC. Its main goal is to turn around the un­der per­form­ing as­sets and make them prof­itable. .

Be­sides, it also pro­vides online bid­ding plat­forms for the sales to take place.

"My rec­om­men­da­tion or at least I would en­cour­age var­i­ous play­ers to dis­cuss whether there is value to build­ing some­thing like this as the United States has built it over the pe­riod of time and South Korea has built it dur­ing the cri­sis and then it be­came an in­dus­try stan­dard for do­ing loan sales there­after," said Dr Acharya. Ad­dress­ing the AS­SOCHAM or­ga­nized 'Ar­con 2018 - ARCs: Emerg­ing avatar in new dis­tressed land­scape' in Mumbai, on 20th Jan­uary 2018, Dr. Vi­ral Acharya, Deputy Gover­nor, RBI, was all out for set­ting up an online trad­ing plat­form, which will help In­dia achieve a thriv­ing mar­ket for sale of NPAs.

"IBA (In­dian Banks' As­so­ci­a­tion), AR­CON (As­so­ci­a­tion of As­set Re­con­struc­tion Com­pa­nies) and CRAs (Credit Rat­ing Agen­cies) can come to­gether to set up the equiv­a­lent of Loan Syn­di­ca­tion and Trad­ing As­so­cia tion (LSTA) in the United States," said Dr. Acharya. He added that it pro­vides fun­da­men­tally three things - dis­clo­sure on credit events, digi­ti­sa­tion of loans and le­gal doc­u­ments and stan­dard­i­s­a­tion along the way. Sug­gest­ing that it would re­quire an in­ter-in­dus­try effort for this to take place, the RBI

deputy gover­nor said that it is in the in­ter­est of banks to cre­ate pri­mary mar­ket liq­uid­ity in sell­ing loans. "It is prob­a­bly in the in­ter­est of ARCs too who may even then have an in­ter­est in sec­ondary mar­kets for these as­sets." He fur­ther said that if some­thing like this is done then over­time many 'good things' could hap­pen.

Loan sales could oc­cur for risk trans­fers per­haps even prior to de­fault or NPAbe­cause re­cov­ery adds stress for play­ers who want to come in even be­fore an IBC (In­sol­vency and Bankruptcy Code) fil­ing takes place.

"So now you don't have to have a mea­sure of re­cov­ery only at the out­come of IBC, you could have mea­sure of re­cov­ery even at stress be­cause that will get re­flected in the loan sales", he added.

I think if that is the point at which the banks are go­ing to be sell­ing loans, then would be the rel­e­vant fig­ure for cal­cu­lat­ing ex­pected credit losses and so on," he added.

CRAs­could ag­gre­gate all this in­for­ma­tion across sec­tors, firms over time and they could pro­vide quar­terly re­ports that could help guide banks in cal­cu­la­tion of PDs (pri­mary deal­ers), LGDs (loss given de­faults), ex­pected credit losses and so on.

In­dian banks are strug­gling with huge amount of NPAs, which is hin­der­ing the growth of our fast-ex­pand­ing econ­omy and so ARCs could be used as a suit­able plat­form to reach out and re­solve NPA is­sues.

Dr. Vi­ral Acharya, Deputy Gov­er­nor, RBI ad­dress­ing the au­di­ence. Dr. Vi­ral Acharya, Deputy Gov­er­nor, RBI re­leas­ing the Sum­mit back­grounder along with (L-R) Na­tional Council on As­set Re­con­struc­tion, Mr. Pallav Ma­ha­p­a­tra, Deputy Man­ag­ing Di­rec­tor...

Mr. D. S. Rawat, Sec­re­tary Gen­eral, AS­SOCHAM wel­com­ing Dr. Vi­ral Acharya, Deputy Gov­er­nor, RBI. D. S. Rawat, Sec­re­tary Gen­eral, AS­SOCHAM, Mr. Gur­preet Ch­hat­wal, Pres­i­dent, CRISILRat­ings, Mr. Biren­dra Ku­mar, Chair­man, AS­SOCHAM ssedAs­sets Res­o­lu­tion...

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