ARCs lack capital to clean up stressed assets: SBI chief

INDIAN asset reconstruction companies (ARCs), a key component in the fight against banks’ bad loans, lack the capital to make a big dent in the nation’s more than $100 billion of stressed assets, chairman of State Bank of India Arundhati Bhattacharya said.

The country may need better-capitalisedforeignfirmsto step in to purchase and turn around banks’ soured credit, Bhattacharya said in an interview in her office on Monday. SBI has held discussions with many of these ARCs about the outlook for stressed assets in the country, Bhattacharya said, declining to name any of the firms.

India’s 16 ARCs — created after the passage of a 2002 law to help reorganise non-performing credit — buy stressed loans from banks and recover it either by turning the company around or by selling it off later. The firms have enough capital now to buy at most about R1 lakh crore ($14.9 billion) of bad debt, according to estimates from brokerage Aditya Trading Solutions, or less than 13% of the total held by India’s banks.

“On one side, Indian asset reconstruction companies have capital constraints and, on the other side, their speed of resolution is not better than banks,” Bhattacharya said. “Instead of stripping and selling assets, they also need to get proper bandwidth to do a proper turn around of companies.”

Underscoring the willingness of authorities to take extra measures to resolve banks’ bad loans, the Reserve Bank of India also announced Monday a programme that allows heavilyindebtedcompaniesto apply to convert part of their loans into equity or convertible debentures.

“Many foreign ARCs which have proven their ability in tur ning around companies are keen on coming here,” Bhattacharya said. “They are well funded and have the necessary management bandwidth.”

Even with the ARCs, Bhattacharya said more capital is needed in the banking system to bolster loan growth. India has pledged to add R50,000 crore to state-run lenders by 2019 to boost capital buffers, which the State Bank chief said is not enough to spur lending in Asia’s thirdlargest economy. Further capital will be provided above this target if needed, Jaitley had told reporters in New Delhi on June 6.

“If you really want credit to speed up and infrastructure financing to take center stage, then more capital is required,” Bhattacharya said. “Growth capital is required if credit growth has to be in double digits.” Bloomberg