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Rs 5-cr capital base mooted for asset reconstruction co

Sarbajeet K. Sen

NEW DELHI, Nov. 29

THE committee on asset reconstruction companies (ARC) has suggested a Rs 5 crore minimum capital contribution by all public sector banks and select financial institutions to set up the first ARC in the country.

The panel, consisting of some bank chiefs and senior Government officials, was constituted earlier this month to study the feasibility of setting up ARCs within the existing legal framework, even while the Government is drafting a legislation for facilit ating the setting up of more such companies.

A total of 31 lending institutions have been identified to take part in the exercise, which includes 27 public sector banks. With the committee suggesting a minimum paid-up capital of Rs 200 crore, it is expected that some of the participants would be re quired to pump in an amount higher than the minimum stipulated.

A meeting held in the Ministry of Finance on Wednesday to consider the report of the committee has also decided that the IDBI would work out the detailed outline for setting up the ARC after getting necessary clearance from the Reserve Bank of India (RBI ).

The committee said that the RBI should come up with a separate set of norms governing the functioning of ARC. ``The ARC is intended to be a sort of an NBFC. But since NBFCs operate within severe restrictions, we would like the norms for ARCs to be a bit different,'' a top banker, who formed part of the panel, told Business Line.

It has also been suggested that the ARC should, during the initial stages of its existence, limit itself to dealing with NPAs of a few select bank only. ``The ARC would have to select a few focus banks since tackling the entire burden of Rs 55,000 crore NPAs of the banking sector at one go will be a big task. These select banks could include the weak banks,'' sources said.

The committee also suggested the adoption of a pricing mechanism for NPAs that would factor in the stamp duty payable in the State concerned to overcome fears expressed by the banks and FIs on high stamp duties coming in the way of the transaction.

The panel said that the pricing of the NPAs should be done through a three-way consultation between the bank/FI, the ARC and an outside professional body.

According to sources, the committee has also suggested that the ARC system can be made functional even without Government guarantees on the bonds that the ARCs would issue in lieu of the asset transferred to it by the banks/FIs.

``We have, however, said that if the Government guarantee is made available, it would help in the system to develop since the bonds issued by the ARCs would then become liquid and easily tradable. This would be a new instrument that could help boost the capital market,'' sources said.