Business Overview

With RBI’s clear and unambiguous direction to Banks and Financial Institutions to clean their Balance Sheets within given time frame, Financial Year 2015-16 recorded unprecedented increase in the NPAs of Banking Industry. With such spurt in NPAs, the role of ARCs to cope up with the expectation of regulator and also Ministry of Finance (GOI) increased manifold. Government and Reserve Bank of India also felt urgent need to make certain amendments so that infusion of capital in ARCs can be substantially increased, besides initiating the process of rolling various legal measures to strengthen the speedy resolution process to curb the NPAs.

In the backdrop of this scenario, role of ARCs is very significant as banks and financial institutions are putting large number / amount of NPAs for sale to ARCs. However, the price mismatch between Banking industry and ARCs, result in lower sale of NPAs. Banks/ FIs are yet to factor in the impact of mandated increased stake of ARCs w.e.f. August, 2014, besides fixing unrealistic higher price of NPAs which are put on sale amongst ARCs, not based on realisability of underlying secured assets and likely timeline of their realization based on various prevailing attendant factors.

Another important factor of lower off take of NPAs to ARCs is the limited resources at the command of ARCs. Further, resource mobilization is hindered by ceiling on investment in equities by FIIs / FIPs and restrictions to Non-QIBs.

Government of India and Regulator understand the seriousness of situation and has taken and also in the process of taking various measures to tackle the situation. All these measures are going to support Banking and ARC industry to enable them for speedy resolution and putting the distressed but financially viable units back on the tracks. Important of these measures are:

  • Passing of Insolvency and Bankruptcy Code by Parliament.
  • Amending SARFAESI Act and RDDB Act.
  • Removing existing cap on investment by Sponsor.
  • Prior approval of RBI not required for investment by Non-sponsors.
  • Broadening scope of QIBs for investors.
  • Exempting stamp duty on Assignment Agreements executed between Banks and ARCs.
  • Allowing acquisitions of irregular accounts not being NPAs.
  • Fixing time period for passing orders by DM/CMM for facilitating possession of secured assets.
  • DM to assist in taking over the management of the borrower company.
  • Depositing minimum 25% of the debt for appealing before DRATs.

With above measures either taken or are in the process of adoption, coupled with the stress in corporate India showing no signs of letting up, future business prospect of ARC industry looks promising. The only major concern need to be addressed is “pricing” of assets put on sale by Banks / FIs. The regulator/ GOI can take measures of liberally allowing changing of provisions in Profit & Loss Account in a deferred manner. It is expected that such a step of RBI would certainly help Bank’s to sell and ARC’s to acquire the stressed assets by addressing pricing mismatch.

UVARCL has a sector agnostic approach to investments in stressed firms. The company acquires Non-Performing Loans from Banks and Financial Institutions under the provisions of SARFAESI Act.After acquisition, UVARCL analysis the circumstances of the stressed firms and accordingly implements strategy to recover the dues.

UVARCL conducts detailed due diligence prior to acquisition and underlying risks are analysed and recovery / resolution period is estimated in deriving the final pricing. UVARCL has a dedicated team of professionals (in-house and external) for conducting financial due diligence, legal due diligence and underlying asset valuation.