Asset recast companies seek a bite of RBI’s special funds pie

HomeNews ArticlesRBI

Asset recast companies seek a bite of RBI’s special funds pie

Hence, a liquidity line from the RBI is important, the chief executive of a large ARC said on condition of anonymity.

Bad loans in banks may decline to Rs 9.1 lakh crore by March 2020, says survey
IBC: Finance ministry asks PSBs to submit asset sale details to ARCs
RBI may soften restructuring norms after govt’s IBC relaxation

MUMBAI: Asset reconstruction  companies (ARCs) are seeking liquidity support from the Reserve Bank of India’s initiative to provide long-term funds at repo rate to banks for specific investments, two people in the know said.

ARCs have written to central bank governor Shaktikanta Das, requesting to allow investment-grade papers issued by them to be considered by banks for investment under the targeted long-term repo operation (TLTRO) funds, they said.

Introduced in late March as a tool to boost liquidity in the system, TLTRO allows banks to borrow money from the central bank for one to three years at repo rates with a rider that this fund must be used to invest in investment-grade corporate debt.

ARCs, which deal with stressed companies, have been facing cash flow issues, especially for those companies undergoing restructuring. Hence, a liquidity line from the RBI is important, the chief executive of a large ARC said on condition of anonymity.

“Even though we are not covered under the RBI’s moratorium guidelines, we have extended moratorium support to those restructured companies and borrowers which are facing cash flow issues,” the person told ET.

ARCs’ appeal to the central bank to make their investment-grade debt eligible for TLTRO funds comes after non-bank lenders and mutual funds had sought a liquidity line similar to TLTRO from the Reserve Bank.

“Reconstruction companies are presently facing liquidity issues as cashflow from borrowers under restructuring and sale of assets is impacted due to current lockdown and impact of Covid-19,” a senior official at a large ARC told ET. “With businesses seeing an all-round disruption, help from the regulator becomes paramount.”

There are 28 ARCs in India with outstanding asset under management of 1.13 lakh crore as of end June 2019, RBI data show.

Nearly 1 lakh crore of security receipts held by banks and ARCs are likely to face a rating downgrade, as valuations of distressed assets nosedive amid the coronavirus pandemic and lockdown, experts said.

As per data with the Reserve Bank, nearly 1.14 lakh crore of security receipts were outstanding as of June 2019.

Last month, the regulator had offered 25,000 crore to banks at 4.4% for lending to NBFCs and MFIs. It had received a tepid response from lenders who bid for little more than half of what was on offer. So far, a bulk of TLTRO funds have been lapped up by AAA-rated companies.

A similar window worth 50,000 crore was opened for mutual funds after high redemption pressure due to closure of six Franklin Templeton credit funds.

Source- Economic Times.