The Asset Reconstruction Company (India) Ltd (Arcil) is planning to empanel strategic investors with expertise in sectors such as steel, roads and power so that it can jointly submit resolution plans for stressed companies in these sectors to the Adjudicating Authority under the Insolvency and Bankruptcy Code (IBC). ARCIL will also team up with strategic investors to participate in the “Swiss Challenge” process (make counter bids) that will be run on National Asset Reconstruction Company Ltd’s anchor/ base bid to acquire stressed companies from lenders, said MD and CEO Pallav Mohapatra. Referring to RBI’s October 2022 guidelines, which allow Asset Reconstruction Companies (ARCs) to act as Resolution Applicants (RAs) under IBC, the ARCIL chief said: ”Now, if we want to become a RA, we will do it only when there is a strategic investor.

As deputy MD of State Bank of India's stressed asset division and then CEO of the bad loan-laden Central Bank of India, Pallav Mohapatra developed unparalleled expertise in dealing with non-performing assets. Now as CEO of Asset Reconstruction Company (India) (Arcil), Mohapatra has been on the buy side of the table for two years. In an interview with Joel Rebello, he talks about the opportunities and regulatory changes facing the industry. Edited excerpts:  The supply of corporate NPAs has come down. What is the outlook for the business?  There are still business opportunities in the corporate book because there are assets, which have slipped into NPA a few years back and are either still in the National Company Law Tribunal (NCLT) or about to go to NCLT or even things happening outside NCLT. We are looking at those assets wherever we see a good possibility of recovery. Fresh slippage is not happening at the rate it was happening earlier but those which have slipped into NPAs earlier have not been resolved 100% which is a segment where there is an opportunity.

The current financial year was a good one for Asset Reconstruction Company (India) Limited, or Arcil, in terms of acquisitions and recoveries. Speaking to Manojit Saha & Subrata Panda in an interview, The business model which is good for the asset reconstruction companies (ARCs) on a longterm sustainable basis is “acquire and recover”. When one follows this model, then you are making money on the acquisition and on the redemption also. Hence, your return goes up. However, if you keep the asset for a longer time, they may make money on accrual basis. However, since after eight years 100 per cent provisions have to be made if one has not recovered the outstanding, so accruing the income and then reversing it after eight years doesn´t make a good business model. In FY22, we (ACRIL) did an acquisition of Rs 2,400 Crore and recovered Rs 2,200 Crore.

Asset reconstruction companies are improving their technology and building partnerships with resolution agencies to service capital-intensive retail and micro, small and medium-sized enterprise loans.  “We are putting up an information technology platform, which we will be using on a subscription or a usage basis. It will have end-to-end seamless integration. If ARCs acquire retail and small ticket-size SME loans, they have to have a robust information technology system. They cannot use the same mechanism that they were using for servicing corporate loans,” said Pallav Mohapatra, MD and CEO, Asset Reconstruction Company (India). “The field collection can either be done by our own resources or by outsourcing. I have come to the conclusion that it is not cost effective for ARCs to do everything in-house. So, why not engage resolution agencies who are in this field. That is more cost effective and you can expand your base without bothering about whether you have the branch outfits or not,” Mohapatra added.

The Reserve Bank of India's (RBI’s) revised norms for asset reconstruction companies (ARCs) will raise the bar for governance and disclosures, and may also trigger a shake-up in the ARC industry comprising 29 players due to enhanced capital requirements and stringent diligence.