Do you see any immediate resolution to the NPA issue?
The recent RBI circulars are an indication of the seriousness and the regulator’s firm approach to resolve bad loans. The schemes introduced earlier did not work out unfortunately for various reasons. We believe, the government also wants it resolved and may introduce guidelines/instructions shortly.
Will a bad bank work?
It depends on who will set it up— private or public sector. Secondly, there are 23 ARCs now and some more may join and they need to survive. As valuation of assets is important it will be interesting to see at what pricing banks transfer to the bad bank, if it happens. We also need to understand if we need a separate bank or if existing mechanisms can be strengthened. Banks should have comfort in taking decisions without attracting questioning, which is the major issue now. Some write-offs are definitely required and there’s no one solution.
Would you recommend a third-party rating system?
If an asset hasn’t been revived for several years, ARCs will have to see what equity value it holds and what discount is required. The market is changing, and even ARCs need capital. After all, it’s the investors money and banks also get money subsequently. Thus, discounts are required.
Has there been a slowdown in ARCs’ assets under management?
Last fiscal, we saw around `18,000 to `20,000 crore (principle loan was about `40,000 crore) which means, roughly 50 per cent has been acquired by ARCs and there has been a good business. We have to see what’s going to happen this year. Large ARCs committed to this space will have greater ability to buy.
Are you looking at raising funds?
We have been focusing on recovery in the last few months and not so much on acquiring, but we will do it this year after finalising our capital plans. Hopefully, by the second quarter we should have it in place. Foreign investors are used to a different type of market. They will put money, revive assets, provided they get it at the right price.