Govt panel moots more powers,sops to asset reconstruction cos

The panel,headed by Alok Nigam,has recommended that the Reserve Bank of India (RBI) should empower ARCs to convert debt acquired by them in usual course of business from banks and FIs into equity of the defaulting company by way of a new contract.

The securitisation and reconstruction of financial assets and enforcement of security interest Act or the SARFAESI Act already provides ARCs the rights of a lender bank and financial institutions on acquisition of a financial asset. It said there would be cases where the agreement for right to conversion of debt into equity has not been executed.

According to the panel,banks and financial institutions are already exempted from the Sebi takeover code when loans are converted into equity.

However,this status was withdrawn for ARCs when the SARFAESI Act was amended in 2004. Given the role of ARCs while dealing with non-performing assets or NPAs,it is imperative that the dispensation granted to directors nominated by banks and financial institutions should be extended to the nominee directors of ARCs,the panel said.

As per the current norms,a director of a public company is not eligible for appointment as a director of any other company for five years,if the person is a director of a company which has not filed annual returns or failed to repay interest/deposit,etc.

It has proposed that the SARFAESI Act should be amended to prescribe the threshold limit of consent requirement from senior and pari passu charge holders with a minimum requirement of 60 per cent majority.

“The consent requirement of 75 per cent of secured creditors is a serious impediment as many large accounts have fragmented share of lending across various term lenders/working capital bankers,” it said.

The RBI should permit amortisation of the loss on transfer to ARCs on a gradual basis to accelerate cleansing of the NPAs from the books of banks and FIs,it said. While the RBI would perhaps prefer to continue with the prudent measure of providing for anticipated losses — one-time provision — the panel said banks should be provided some headroom to write off the losses on account of impaired assets to ARCs in two or three instalments.

It has also proposed that an ARC should be permitted to acquire financial assets from other ARCs and non-banking financial companies or NBFCs. Under the SARFAESI Act,currently ARCs can acquire assets from banks and financial institutions only.

The panel further said the RBI should permit foreign institutional investors or FIIs to sell security receipts (SRs) issued by ARCs to other qualified institutional buyers outside the stock exchanges.

FIIs should also be permitted to buy SRs from Qualified institutional buyers and ARCs in the secondary market outside the stock exchanges.

ARCs should also permitted to undertake standard asset securitisation for banks and financial institutions and hold such assets as trustee or special purpose vehicle for the benefit of investors,it said.