ARCs want RBI to relax 10% cap of share sale to single entity in IPO

Asset reconstruction companies (ARCs), sensing a surge in business opportunity due to more favourable norms, are looking to tap the capital markets to raise resources.

However, a particular norm from the Reserve Bank of India (RBI) is acting as a hindrance for raising funds via an initial public offer (IPO) of equity. According to RBI norms, a 10 per cent change in shareholding will need regulator permission. An entity which holds more than 10 per cent stake in an ARC is classified as a sponsor Stock Market Astrology

“The need of capital in ARCs cannot be over-emphasised. We have approached the (Union) finance ministry and RBI to re-examine the issue,” said Birendra Kumar, chairman, Association of ARCs in India and managing director of International Asset Reconstruction Company.

Recently, the central bank also mandated that ARCs pay 15 per cent cash upfront, as compared to five per cent earlier, while buying a stressed asset from financial institutions.  

“Fund raising is a constraint for ARCs at a time when the banking sector is looking to sell bad loans in a big way to clean up their balance sheets. The increase in upfront cash requirement has put further pressure,” said a senior executive from the oldest entity in the sector, Arcil. The official added Arcil had no immediate plan to raise more capital, not needing it at present Jackpot Stocks Trading Tips

ARCs, according to a study by rating agency CRISIL, can only absorb Rs 12,000-14,000 crore worth of bad loans this year out of the Rs 60,000 crore of these in the banking system that are expected to turn bad. It estimates the system's gross non-performing assets to reach Rs 4 lakh crore by March next year, more than double of what it was in March 2013.

To encourage banks to sell bad loans, RBI has allowed lenders to spread the losses from asset sales over eight quarters. However, this is a one-time window, available till the end of this financial year Sensex Astrology

Saying access to capital remains key, CRISIL added: “Under the new regulatory regime, ARCs with deep pockets and ability to raise capital will benefit.”

ARCs are also constrained on fund raising with the regulation that a sponsor’s stake be capped at 49 per cent. “Such sponsors can only pump more capital if the other shareholders agree. This acts as a major constraint,” said a senior sector official Indian stock market astrology prediction