Rs 20,000-cr NPAs ...No takers --PLEASE...!!!

No takers for Rs 20,000-cr NPAs as banks, ARCs spar over valuationsShayan Ghosh | Mumbai | Updated: Sep 06 2014, 14:09 ISTClose to Rs 20,000 crore of non-performing assets (NPAs) that banks want asset reconstruction companies (ARCs) to pick up have found no takers as the two continue to spar over valuations. ARC senior executives that FE spoke to said that 25 banks have put assets on sale in the past month or so.The head of a large ARC said reconstruction companies were not ready to buy assets unless banks offered them loans at attractive reserve prices. “Lenders should realise that since we have to pay 15% upfront now compared with 5% earlier, the reserve price should be lower. However, banks appear to be unwilling to drop the value of the assets," he observed.Last month, Reserve Bank of India (RBI) had asked asset reconstruction companies (ARCs) to increase the mandatory upfront investment in security receipts (SRs) to 15% from the earlier 5% to ensure ARCs have 'more skin in the game'.Eshwar Karra, chief executive officer at Phoenix ARC, said he expected the prices of security receipts (SRs) that are issued when an NPA is 'sold' to come down. For their part, banks say they are not in a position to take a big hit in terms of lowering the value of the asset. “It may be true that the ARCs have to spend more upfront but we cannot reduce the price,” said an executive director at a public sector bank. ARCs, however, maintain the reserve prices should be more practical, considering the increase in their upfront payments.“Some banks have set their reserve price at a level equal to that of the size of the loan,” said Siby Antony, MD & CEO, Edelweiss ARC.Owing to a jump in NPAs, banks have of late been selling very aggressively to ARCs to clean up their books and this has prompted RBI to step in. “A spurt in the activities of asset reconstruction companies (ARCs) driven by banks’ efforts for cleaning up their balance sheets, calls for a closer look at the extant arrangements between ARCs and banks,” RBI said in its financial stability report.Though the ARC industry has been dominated by ARCIL, which was India's first ARC, other players like Edelweiss ARC and JM Financial ARC have become more aggressive of late.According to sources, Edelweiss issued SRs worth Rs 9,000 crore in FY14 whereas ARCIL had Rs 4,500-crore SRs in FY14 and JM Financial ARC had Rs 2,500 crore in their bag. In FY14,ARCs bought assets worth Rs 22,000 crore, sources said.Phoenix asset reconstruction company, sponsored by group companies of Kotak Mahindra group has receipts of Rs 1,750 crore in FY14, sources added.

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