In a significant development, a few leading private sector banks have begun to cough up a portion of their non-performing home loans to Arcil.
Other banks doing the same to burnish balance-sheets
MUMBAI: In a significant development, a few leading private sector banks have begun to cough up a portion of their non-performing home loans to the Asset Reconstruction Company (India) Ltd (Arcil).
Arcil is the country’s premier aggregator of distressed industrial assets.
Industry sources say that ICICI Bank recently set the trend by selling a bunch of non-performing home loans to Arcil.
Kotak Mahindra Bank and Standard Chartered are also said to have followed ICICI by doing similar deals with Arcil. This, however, could not be verified by DNA Money.
Rajiv Sabharwal, head of retail assets at ICICI Bank confirmed that ICICI Bank had recently done a deal with Arcil that involved a sale transaction to see bad home loans to Arcil. “We did this in the last quarter,” Sabharwal said.
Sources said ICICI had offloaded receivables worth Rs 1,000 crore, but Sabharwal said the number was around Rs 400 crore in the last quarter.
The securitised portfolio included a mix of home loans and other personal loans, he said.
ICICI Bank’s deal to bundle bad home loans in Arcil’s favour is a first in the industry.
Arcil’s debut into retail space is for the first time.
On April 4, 2007, S Khasnobis, managing director and CEO of Arcil, told DNA Money of a plan to venture into troubled retail home loans market by buying out securities from banks.
Thus far, the asset reconstruction firm has stuck to troubled assets from the corporate sector.
ICICI an aggressive bank has been a pioneer in securitisation of loans. “We do play in this segment. We have been securitising both good and bad assets,” Sabharwal said.
Arcil aims to create a special purpose vehicle to handle mortgage backed securities.
In the previous interview, Khasnobis had said the initial investment would be to ‘test the markets.’ Arcil will create its own “fair debt collection norm and formalise a list of dos and don’ts.” This is primarily because a clear policy on bad home loans is yet to be drafted by the regulators.
Arcil is likely to use the skills from its repository as an asset reconstruction firm to turn bad assets into good. Its new vehicle in the distressed home loan market will use “compensation” as a prime motif to recover assets. Arcil can provide “temporary cheaper homes” to the borrowers to tide over the bad times. It would discourage practices such as putting pressure in borrowers. However, ICICI will still manage the securities such as collecting interest and handing it over to Arcil for a small fee. “At a future date when Arcil is ready, we will handover the management of the bad home loans to it,” said Sabharwal.
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