Several measures by regulators in the recent past are expected to make the functioning of asset reconstruction companies more feasible and effective, finds a report in Banking Frontiers. In an interview with the magazine, Rajesh Begur, managing partner, ARA LAW, says critical measures have been taken by regulators like SEBI’s allowance to list Security Receipts (SRs), which is expected to bring in much needed liquidity in the business of SRs. “The enactment of the Insolvency and Bankruptcy Code (IBC) has provided ARCs with a faster and profitable exit route, which is expected to bring in investments from institutions with deep pockets. RBI has also brought in regulations to ensure ARCs have a greater skin in the game. Further, heavier capital requirements have made it difficult for casual players to broach the market,” says Begur.
He feels a persistent problem with ARCs has been their reliance on the ‘management fee model’ for financial sustenance – given the lack of institutional funding and historically low capital. “There has been a displacement of focus from putting strategies to revive stressed assets. In other words, ARCs have merely functioned as asset warehousing companies. Therefore, while ARCs have managed to stay afloat, the problem of rising stressed assets has not been solved or even mitigated by them. However, this situation is expected to improve. Critical measures have been taken by regulators,” says he.
