ARCIL, the first asset reconstruction company in India, started its operations in financial year 2003-4. As on date there are more than a dozen asset reconstruction companies registered with the Reserve Bank of India and most of them seem to have commenced operations. The Indian model of asset reconstruction companies differs substantially from the global model of companies formed to resolve systemically impaired loans. Briefly, the chief differences are:
Globally, asset management companies were formed to resolve loans that went bad because of a systemic crisis, not loans that went bad because of bad lending. In India, there is no finding that the loans that have gone bad in the past have suffered a systemic crisis. In fact, there is no evidence of a systemic or market crisis in India at all. Hence, the approach has had nothing to do with managing the evils of a system breakdown.
India is the only country where ARCs have sprung up as a business model, with special statutory powers granted by the lawmakers. There is no doubt that dealing with distressed assets is a global business, but in no other case have governments come forward to grant special incentives or special legal powers to profit-oriented asset management companies. In other words, where special powers were granted, as in case of Danaharta, Malaysia, the vehicle a singular brief – resolution of loans that went due to a system crisis. It is arguable whether asset reconstruction companies, which were envisaged as tool of resolving the problem of bad loans, could actually be a business model, and if it is a business model indeed, is there any justification for granting special statutory powers to them.
India is the only country where asset reconstruction companies do not have a sunset clause. In most other countries, such as USA, Malaysia, etc., asset management companies came in response to a crisis. Crisis resolution measures cannot be everlasting – they lose their meaning if they last forever.
Clearly, there has been no central thinking on the role and powers of ARCs. The Committee reports on whose recommendations the ARC model was initially mooted may have actually never envisaged an asset reconstruction business boom that India currently seems to have.
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Its really interesting point you are making.I think, I saw in one of the latest newsletters of an ARC talking of role of ARCs in countries like Thailand,Malaysia etc handling resolution of bad debts and the article was basically trying to say that banks should do what they are meant for -and bad debts should be handled by ARCs.Your point of quality of Indian bad debt in the banking system and others, say, South East Asian countries is significant in terms of what these ARCs in India are going to do in future .Now its almost 7/8 years of ARCs in India,it is a question mark that how many bad debts have actually been resolved after making payments of past labour dues and PF,ESI,Sales Tax.Excise dues etc and then making a unit run profitably?Shall look forward to hear about some of the examplary resolutions by Indian ARCs where workers have benefitted by getting their all dues(definitely after having a successful negotiation with the Union/s).
ReplyDeletemanojkumardas@gmail.com
Dear Mr Manoj
ReplyDeleteI have a very specific question
I had very healthy account with a nationalised bank , my firm was exporting garments. It was growing very fast . we were time tested customers & enjoying good facilities .
My bank was Doing Forward exchange rates contracts without over knowledge /contract & consent & when in regular way payments came in INR they cancelled & debited losses to our accounts.
On documents submitted , sent on collection they provided advance at an arbitrary rate & later , when payment was realised after adjusting their advance against export bill they credited the excess to their P & L account
There were similar other causes , whee we lost a few hundred thousand USD , bank has admitted the claims but not paid. We filed recovery suit on Bank in 1995 which is still pending.
They have now sold this NPA account to asset restructing co ?
what is their role ?
Can bank sell an account which is subjudiced ?
Do these companies use muscle power & goondism ?
What is their role ?
please revert on my mail
esb080652@gmail.com
Dear Arvind,
ReplyDeleteApproach the DRT for relief as subsection 4 of section 5 of the securitisation act.
Subhash
Whether the Securitisation Companies/ Reconstruction Companies are covered under the definition of “Credit Institution” under section 2(f) of the CICRA Act 2005.
ReplyDeleteWhether the Securitisation Companies/ Reconstruction Companies are covered under the definition of “Non Banking Financial Company” under clause (f) of Section 45-I of the Reserve Bank of India Act, 1934.
ReplyDeleteAll the best ARCIL. Hope that ARCIL come up with flying colours
ReplyDeleteThis is really educational in some way. Plus it is an interesting way of teaching it to us. I did learn from this.
ReplyDeletellc