ARCs: Emerging Avatar
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...