Tata Capital, a wholly owned unit of Tata Sons is picking up a 20% stake in International Asset Reconstruction Company (IARC). Tata Capital has got the Reserve Bank of India’s approval for the move and is hoping the transaction will be completed within two months, according to this report . HDFC is the largest shareholder in IARC and got its stake through its acquisition of Centurion Bank of Punjab.
Other new investors are expected to be Netherlands Development Finance Corporation FMO and London-based Standard Bank Plc. The combined investment of the three entities in IARC is Rs 90 crore and the stake will be acquired through both equity and convertible preference capital. Both the foreign banks are picking up 8.4% each, which will go upto 9.78% after the conversion of preference shares.
IARC was formed by former State Bank of India Chairman and telecom regulator M.S. Verma and former Bank of America CEO Arun Duggal. City Union Bank, who holds 11%, was also one of the founding members along with Centurion Bank of Punjab, who had 29.41% stake. IARC manages non-performing assets and is involved in acquisition, resolution and reconstruction of non-performing loans. IARC currently has assets worth Rs 500 crore under management.
Need of the hour : Asset Reconstruction Business
An increased liquidity pressure coupled with declining internal accruals and reduced funding options has aided the emergence of operationally and financially strong players that have the resources and management capability to tide over the current crisis. The present downturn will see more ARC firms with a lot of new entrants coming up. JM Financial has received its licence RBI to enter this business.
Edelweiss Capital is also venturing into asset reconstruction business, for which it’s on the lookout for foreign partners. It has also hired Siby Antony to head this business. Small Industries Development Bank of India (SIDBI) is planning an ARC unit which will be operational in next 2-3 months.
Kotak Mahindra Bank has also received RBI’s regulatory approval to set up an ARC unit and will completely own it, but will bring down its holding to 49% as per RBI guidelines.
Reliance Capital also received a licence in February this year to set up an ARC. ICICI-promoted Asset Reconstruction Company of India (Arcil) is said to be one of the biggest player in this field in India. There are also several other players such as Dhir & Dhir Asset Reconstruction and Securities and Rakesh Jhunjhunwalla promoted Pegasus.
There are nine ARCs in India including ARCIL, UTI-led ASREC, IFCI-promoted Assets Care Enterprise (ACE), Dhir & Dhir, International Asset Reconstruction Company and Pegasus Asset Reconstruction Company.