ChilliciousSale of stressed assets has fallen sharply in FY17, despite improved recognition by banks. Vinayak Bahuguna, CEO of Asset Reconstruction Company of India (ARCIL), the country’s largest asset reconstruction company, in an exclusive interview with Chillicious’s Malini Bhupta explains why banks are not willing to sell down their stressed assets and what can be done.
The Reserve Bank of India has been working with banks to find a resolution to stressed assets. How has the fiscal year been?
The proactive measures by RBI has pushed the banks to recognize stressed assets. The recognition piece has improved. Provisioning is still progressive and time-based. Invariably, this is what banks do and auditors are fine with it. Banks have been able to play around with provisioning, but the disclosure in terms of non-performing loans has improved. Under IFRS (International Financial Reporting Standards), loss provision has to be made upfront on day one. What has not worked out is finding a solution to the stressed assets.
What can be done to solve this persistent problem?
One way to do it is to recapitalise banks. Because that piece is missing, banks are not doing the ultimate thing. As a result companies are not able to do the right thing and continue to bleed to death. Banks have lost their ability to fund new credit. As and when investment demand picks up, who will fund it? If this issue is not solved, I see a very long period of very slow growth for the country. Given our challenge with inflation, it could be a disastrous thing.
Are banks selling down stressed assets more aggressively now?
As stress started building out a few years ago, banks started selling in bigger numbers. The average in the last three years of loans being tendered has been in the vicinity of Rs 1 lakh crore. And deals concluded have been in the 15-20 percent of this. This fiscal year has been slow. People were expecting that there was a limited window till March, so more structured sales would happen but that is not the case. Mostly mid-corporate names have come to market – unfinished power projects, smaller steel firms, infrastructure projects and a host of others.
What about assets of large companies and are banks actively selling them down?
Banks have tried to shed some of these assets or force managements to shed some of these assets. Other than these, banks are not trying to sell these assets separately. Where there is a single asset, banks are not selling down aggressively.
How has this fiscal year been for large asset sales by banks?
At the start of the year, we felt we would be involved in one or two large assets sales. We have not completely failed but it has not happened despite our best efforts. We made some informal offers, which the banks have not reacted to. Initially, we were told banks were working with the central bank and S4A (Scheme for Sustainable Structuring of Stressed Assets) was announced in July. Banks could not meet the conditions and so they have gone back to the drawing board. For a brief while, the IBA organized meetings of bank heads and they were trying to get some twists approved to allow some deep restructuring. Given the current environment, some larger cases may invite scrutiny so banks would prefer to route it through the bankruptcy route.
What kind of assets are you acquiring from banks?
We are acquiring mid-market corporate accounts from banks. The sellers are coming one by one and as and when they feel like. We have been buying fair amount of retail. We are in the SME space. Again, we have offered to buy the entire SME portfolio from banks but it has not happened. The smaller ones also require the same process that banks need to follow to redress issue of smaller accounts.
Do asset reconstruction companies have capital to fund large asset purchases?
There is no dearth of capital or funds. At the right price, there is capital to acquire assets. I have money provided the asset is priced right.