The asset reconstruction sector, where activity is concentrated among the top five players, needs well-capitalised and well-designed entities to strengthen the asset resolution mechanism further, said a Reserve Bank of India (RBI) study.
Notwithstanding the increase in the number of asset reconstruction companies (ARCs) over time, there has been a concentration in the industry in terms of assets under management (AUM) and the security receipts (SRs) issued.
Of the total AUM, 76 per cent was held by the top five ARCs in March 2020. Furthermore, in terms of the capital base of the industry, the share of top five was 67 per cent, according a study released as part of RBI’s April 2021 bulletin.
Despite the policy push to broaden and enhance the capital base of these companies, they have remained reliant primarily on domestic sources of capital, particularly banks, it said.
The cost of acquisition to book value ratio, although posting a slow rise, remains low and is marked by wide variations across ARCs and economic sectors.
The ARCs have predominantly resorted to rescheduling of payment obligations as a method of resolution.
There is considerable concentration of older SRs in the books of the ARCs, it added.
Going forward, a new ARC for addressing the NPAs of public sector banks may also shape the operations of the existing ones.
RBI has formed a six-member panel headed by Sudarshan Sen, former executive director, to carry out a comprehensive review of the working of ARCs.
The panel will recommend suitable measures for enabling such entities to meet the growing requirements of the financial sector. It will submit its report within three months from the date of its first meeting.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.