Ahead of new ARC formation, Punjab National Bank to sell Arcil stake

As the process to set up a new national asset reconstruction company (ARC) gathers steam, Punjab National Bank (PNB) has begun the process to exit Asset Reconstruction Company (India), also known as Arcil. The bank’s investment arm on Monday sought expressions of interest from potential buyers in a public notice.

“PNB has initiated a sale process to offer its holding of 3,25,06,486 equity shares i.e. 10.01% of the paid-up equity share capital of ARCIL (“proposed transaction”). PNB Investment Services Limited is the advisor to PNB (referred to as “PNBISL”/ “advisor”) for the proposed transaction,” PNBISL said in the notice.

Arcil’s other sponsors are: Avenue India Resurgence, State Bank of India, IDBI Bank and ICICI Bank. Arcil is an associate member of the Indian Bankers’ Association. In November 2018, US-based Avenue Capital bought a 27% stake in the company for an unspecified amount as investors IDFC Bank, Ashmore Capital, FirstRand Bank, Barclays, Singapore’s GIC and Karur Vysya Bank exited it.

There has been little clarity so far on how the new ARC, proposed in the Budget, will be funded. While some government officials have said that it will be up to banks to put in seed money, it is not yet clear which banks will actually invest. A detailed framework for the ARC is in the works, financial services secretary Debasish Panda said earlier this month, adding that the government will not be putting in any money.

FE had reported in January that bankers plan to seek two exemptions for the new ARC. First, relaxation of the September 1, 2016 circular which effectively requires banks to provide for an asset assigned to ARCs as if it were still on the bank’s books. The other would be to exempt the new ARC from making future provisions for assets it buys.

In a recent report, SBI’s economic research wing said public sector banks (PSBs) now have a provision coverage ratio of around 86% (up from 62% in FY18). “This implies that the PSBs would have provided for most of the bad assets and a wholesale transfer of the bad assets to the bad bank is just a technical issue and the process of recovery and resolution could be carried out much better,” the report said.