Blackstone Group plans to set up an ARC in India

Blackstone, a Global PE firm is looking out to set up an Asset Reconstruction Company (ARC) in India, anticipating a growing opportunity due to increasing Bad Loans in the country

  • In June itself RBI has named some large defaulters & asked banks to initiate Insolvency proceedings against them and such names include Alok Industries Ltd, Essar Steel Ltd., Monnet Ispat etc.
  • Some other Global PE players have already acquired stake in ARCs in India like KKR & Co., International Finance Corporation (IFC) etc.
  • What do ARCs Do?

    • For e.g. if a Bank lends money to any person (includes company), it expects to receive periodic payments of principal and interest. However, when the bank does not receive those periodic payments for a specific of time, (let’s say 90 days) these loans are classified as nonperforming assets. If these NPA’s are allowed to stay on the bank’s balance sheet, it will affect public image and stakeholder’s confidence in bank.
    • Hence, banks sell these bad loans to specialists called Asset Reconstruction Companies. The business of these companies is to buy bad loans from banks at a steep discount. These companies then take special measures to recover the money owed. If they are able to recover the money, they make a profit, if not they lose the money.