Turnarounds are as exciting as they get in the realm of business. Unsurprisingly, in the west, distress investing has been the source of many a multi-billion dollar fortune and financiers like Wilbur Ross, JC Flowers and Howard Marks are legends in their own right. In India, however, asset restructuring or distress debt investing is still the domain of institutions. Even as the first asset reconstruction company Arcil was set up in 2002, the contribution of ARCs in resolving non-performing assets is still a work in progress. In addition to vested interest groups and judicial delays, part of the blame can be attributed to the mishmash that has masqueraded as policy over the years.
The irony is that, even banks which are seeking to get rid of their NPAs, have been allowed to set up ARCs or invest in them. Hence many banks have been founding investors in ARCs. Besides its stake in IARC, ICICI Bank has a 13% stake in Arcil and other major shareholders in Arcil are SBI, IDBI with about 20% each and PNB with 10%. That trend has continued even in private sector ARCs. Even stretched banks like Indian Overseas & UCO hold around 9% and 5% respectively in JM Financial ARC and now SBI has partnered with Brookfield while ICICI Bank already has a JV with Apollo Global.
Although the regulator’s wisdom in allowing banks to set up ARCs is open to debate, the business itself is witnessing hectic activity. How ARCs are helping resolve the bad loans problem is the focus of this issue's cover story. While ARCs initially struggled with aggregation of debt from various banks, now they have capital adequacy and operational challenges to deal with.
But not all assets can be revived and so ARCs are far from interested in them. Hence there is persistent talk about a government sponsored bad loans bank. Even as the merger of weak PSU banks into large ones is a given, the question of how the proposed bad loans bank will be funded still remains unanswered. Among other stories, we ask if Shree Cement can continue its winning streak and we have a feature on why infrastructure investment trusts are in vogue.