ARC: Loan Program for Cheap Credit Needed: ARC to RBI

Mumbai: Asset Reconstruction Companies (ARCs) have asked the central bank to formulate a general bank lending program to facilitate cheap credit for these companies, two people familiar with the development of the business told ET. situation.

“We have asked the RBI to order the banks to create a CRA lending policy because there is a lack of clarity on this in the current framework,” said the CEO of a large CRA. “The banks are afraid to lend us after a few audit committees have raised several questions about such proposals in the past. Is Lending To CRAs Worse Than Lending To NBFC? ”

CRAs ET spoke to say the lack of a lending framework deters banks from objectively considering such proposals which are crucial to improving the efficiency of capital allocation and extracting funds stranded in. currently underproductive assets.

ARCs say banks’ lending decisions should be based on an ARC’s stand-alone balance sheet.

“The banks have closed shop at the CRAs; there is no bond market that we can borrow money from and there is no foreign investor that we can tap into. The only way is a fund based in India that sources foreign capital, ”said a senior official from another CRA. “ARC, as an asset acquirer with capital investments, is under serious threat. ”

The recommendations sent to the RBI were shared with a task force set up to review the regulatory framework governing CRAs. The task force is expected to make recommendations on the policy environment for rehabilitation companies.

The CRAs have also called for a level playing field for all investors who buy distressed assets, as alternative investment funds (AIFs) have better investment criteria. The CRAs also requested that the upfront payment of 15% to acquire bad assets be increased to 2.5%, in accordance with current AIF regulations.

In accordance with regulations published in 2014, a reconstruction company purchases a stressed asset from a lender under the 15:85 structure, where 15% of the net asset value is prepaid while Guarantee receipts are issued for the balance.

Stakeholders also called for a relaxation of provisioning standards so that provisions are only made on the basis of the net asset value (NAV) of the loan sold against existing guidelines stipulated by the RBI. Currently, banks must continue to hold provisions even after the sale of an asset and cannot benefit from a reversal of provision. “This is to avoid the double-sourcing rules. Once the loan is withdrawn from the bank books, it should not be considered a loan asset; therefore should not require such a high provisioning, it should be seen as an investment, ”said a public sector bank official.

The CRAs have also called for an expansion of the scope of qualified buyers. Potential investors in securities receipts should include high net worth individuals, corporations and all categories of non-bank finance companies, the CRAs urged. Stakeholders have also asked the RBI to allow CRAs to act as resolution seekers in bankruptcy cases, such as at Reliance Communications and Aircel.

“Banks are not interested in selling NPAs, through ARCs, unless it is 100% cash, which is why we are forced to buy with 100% cash, which prevents us from concluding more transactions, because the liquidity reserves would decrease considerably, “said one of them. of the people mentioned above.

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