Usha Thorat, Director of the Centre for Advanced Financial Research and Learning (Cafral), held discussion with banks, rating agencies and asset reconstruction companies (ARCs) on the issues in the stressed loan market.
Typically, banks sell non performing assets (NPAs) to ARCs, which in turn tries to recovers the loan from the borrowers. ARCs acquire stressed assets from banks at a mutually agreed upon price and then recover it from the loan borrowers and thereby earn commissions from such recoveries. Such transactions can take pace in two ways: either by cash or security receipts (SRs) issued by ARCs.
ARCs sell SR to select qualified institutional buyers including banks. As and when an ARC recovers loans, it repays back to those SR holders.
But in recent times, banks which had subscribed to SRs suffered losses. ARCs were not able recover adequately from defaulting companies. Hence, banks are now averse subscribing to SRs.
This issue was reportedly discussed in the recent meeting held by Thorat, who is a former RBI deputy governor.
Based on the meeting, Cafral is supposed to submit a report to the RBI as to why business is not happening here.