Bank NPAs make opportunity for asset reconstruction firms: Jaitley

Finance Minister Arun Jaitley on Saturday said the non-performing assets (NPAs) of banks present an opportunity for Asset Reconstruction Companies (ARCs) as the stressed assets have an inherent value and can be turned around.

"The opportunities presented by the Insolvency and Bankruptcy Code (IBC) framework and the government`s emphasis on resolution represent a unique opportunity for ARCs and Private Equity (PE) firms," Jaitley said here at a meeting with leading ARCs and PE firms focussed on stressed assets.

"The accounts classified as impaired/stressed still had inherent value. These were essentially productive assets which if turned around would not only create additional jobs but also contribute to national output. For this to happen, timely interventions, transparent price discovery and right management were required," he said.

Jaitley highlighted the legislative and regulatory changes made over the last 18 months which had created an enabling and supportive operational environment for ARCs and for takeover of stressed assets by PE firms/special situation funds.

"These, inter alia, include 100 per cent ownership by sponsors, higher ceiling of 100 per cent for Foreign Direct Investment (FDI) in ARCs, pass through status to ARC trusts for income tax, exemption from stamp duty and enabling trading of security receipts," the Finance Minister said.

He noted that a number of new ARCs have sought and obtained registration during recent months.

"The increasing number of players in the market was indicative of an increasing interest in the sector but also presented an opportunity for banks to offload stressed assets before fully provisioning for them. The ratio of cost of acquisition to book value of assets acquired by ARCs has been rising. Within this overall context, the ARCs and PE funds were well placed to step up their activity levels as all the building blocks were there," Jaitley said.

During the meeting, the need for evolution of targeted case specific solution by ARCs/PE funds was brought out, as these entities have higher operational flexibility.

"It was suggested that sale of project loan by a consortium instead of individual banks selling their loan account could be a much more effective way of ensuring debt aggregation in a timely manner. Suggestions were also made regarding increase in activity levels of ARCs and PE funds," the Finance Ministry said in a statement.

"Collaboration between banks, ARCs, PE, Asset Management Companies and resolution professionals could pave the way to a virtuous cycle of fresh investments, new jobs and additional demand," Jaitley said.