Senior-most Reserve Bank deputy governor KC Chakrabarty has blasted asset reconstruction companies (ARCs) for being “non-transparent” and squarely blamed them for the failure of the mechanism.
“ARCs have failed in our country because their pricing is the most non-transparent. Bring more transparency in the pricing,” he said while speaking at the annual Bancon over the weekend here.
He said the central bank is all for resolution of bad assets by banks through the ARC mechanism and also offered to resolve any vexed issues. An ARC typically picks up a bad loan or a chunk of them from lenders and sell those assets to other lenders after working on the accounts. This helps banks from not making any mandatory provisions in their books, as such loans once sold do not remain in their books.
Arcil, sponsored by State Bank, IDBI Bank, ICICI Bank and Punjab National Bank, was the first ARC to begin operations in the country nearly a decade back.
“ARCs are not transparent in pricing as well in their functioning. We need to bring more transparency into the system in general and into the ARCs in particular,” Chakrabarty said.
“We are not saying that the banks cannot resolve their bad assets through ARCs but it has not taken off,” he added.Notably, bad assets jumped to record highs in current fiscal as the economy is traversing through muddy waters. According to NPAsource.Com report, as of the September quarter, net bad loans of 40 listed banks soared 38 per cent to Rs 1.3 trillion.