India has room for large asset rejig co

Mumbai: A study of

asset reconstruction companies

(ARCs), published by the RBI, has said that there is scope for entry of a well-capitalised and well-designed entity in the Indian ARC

industry

. Additionally, this would strengthen the resolution of bad loans in the industry.

The study notes that the Indian

ARC

structure is different from other countries that experimented with a public sector model of asset management companies marked by their existence for a pre-defined period following banking crises. The Indian ARC industry has not done well in terms of bringing in capital or recovering bad loans quickly.

According to the central bank’s report, Indian ARCs have relied primarily on domestic sources of capital, particularly banks and have relied heavily on bank borrowing. As banks were

shareholders

,

lenders

as well as sellers to ARCs, there was a need to monitor whether there was a circuitous movement of funds between banks and these institutions. The report further notes that 42% of the security receipts issued by the ARCs (which are against bad loans) are more than five years old, which means that they would have to be redeemed over the next four years or written off.