Skip to main content

RBI order may bump up ARCs valuations

By
RBI order may bump up ARCs valuations
The Reserve Bank of India’s (RBI’s) dispensation to allow asset reconstruction companies (ARCs) to hold more than 26 per cent stake in distressed assets might bump up the valuations of the ARCs for foreign investors
The rule puts ARCs in a commanding position in deciding how an asset resolution should happen, something they could not do so far because of their limited shareholding. Technically, the latest rules give ARCs freedom to become owners of the stressed firm and drive the resolution process
“We will now have better level of control and more say in how the company concerned should be operated,” said Vinayak Bahuguna, managing director and chief executive officer of Asset Reconstruction Co of India (ARCIL). “Moreover, it gives ARCs the ability to maximise returns by increasing shareholding and selling the stake off in case a company turns around.”
The central bank, in a notification on its website on Thursday, did not specify an upper limit that an ARC can hold for debt converted into equity. “ARCs with net owned fund of Rs 100 crore on an ongoing basis are exempted from the shareholding cap at 26 per cent of postconverted equity of the borrower company,” it said.
The Reserve Bank of India (RBI) directive would also make domestically incorporated ARCs attractive to foreign funds looking to acquire a share of the pie in India’s Rs 10-lakh crore stressed assets markets.
The scope of business would accelerate in the coming days, especially with the bankruptcy code in place. Now that clauses have been amended to keep defaulting promoters largely away from the resolution plan, the haircut taken by banks in each case would also be deep, according to analysts, and that should be advantageous to ARCs.
The ARC business, in which 100 per cent foreign direct investment is allowed, operates in a joint venture model. Foreign funds with deep pockets pick up stakes in domestic ARCs to buy local stressed assets.
With the RBI’s directive, ARCs become an acquisition target, said a senior executive with an asset reconstruction company.Bahuguna, however, said earlier too there was no problem in getting foreign capital in the distressed asset business space.
On the RBI’s other stipulation that at least half of the board members should be independent, Bahuguna said that was already the case in all ARCs.The central bank said the shares acquired after conversion of debt should be marked to market at least once a month.
In addition,“The ARC shall explore the possibility of preparing a panel of sector-specific management firms/individuals having expertise in running firms/companies which could be considered for managing the companies.”These conditions, along with a minimum of Rs 100 crore of net owned funds, are already adhered to by all ARCs.
The Business Standard, New Delhi, 25th November 2017

Comments

Post a Comment

Popular posts from this blog

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm...
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the...
Post a Comment
Read more

SFBs should be vigilant, proactive to mitigate risks: RBI deputy guv

By
  The Reserve Bank of India’s Deputy Governor Swaminathan J on Friday instructed the directors of small finance banks (SFBs) to be vigilant and proactive in identifying emerging risks in the sector.Speaking at a conference for directors on the boards of SFBs, Swaminathan highlighted the role of governance in guiding SFBs towards sustainable growth with stability. He also emphasised the importance of sustainable business models.Additionally, he highlighted the need for strengthening cybersecurity to protect the entities against digital threats and urged for a stronger focus on financial inclusion, customer service, and grievance redressal to ensure a broader reach of banking services.Executive Directors S C Murmu, Rohit Jain, and R L K Rao, along with other senior officials representing the Supervision, Regulation, and Enforcement Departments of the RBI, also participated in the conference.   -  Business Standard  30 th  September, 2024
Post a Comment
Read more