In a strategy shift, Asset Reconstruction Co. (India) Ltd (ARCIL) has decided to focus on recovering loans from retail borrowers and small and medium enterprises (SMEs), while looking at mid-sized companies on a selective basis.

Vinayak Bahuguna, managing director and chief executive officer of the reconstruction firm, said this constituted a shift in strategy for ARCIL as 80% of its current portfolio consists of corporate assets.

The reconstruction company has assets worth Rs 10,000 crore on its books.

The expansion of the company’s retail assets will happen through a division called Arms. The unit, which commenced operations in 2008, has 17 locations across India and employs more than 300 employees. It currently contributes 20% of the reconstruction company’s total assets under consideration.

“The fee we charge to recover retail and large corporate assets isn’t very different but in smaller assets, we can recover much faster and the money can be invested back into the business,” Bahuguna said while talking to reporters at a briefing.

In some cases, ARCIL will also be willing to look at making a 100% upfront cash payment when purchasing retail assets, Bahuguna said.

Under the Reserve Bank of India (RBI) guidelines, asset reconstruction companies (ARCs) can pay 15% of the net asset value as upfront payment and issue security receipts for the rest. These security receipts can then be redeemed by the banks at a later date.

Sanjay Agarwal, executive vice-president and head-retail and SME business at ARCIL, said that retail assets make up about 20% of the banking system’s non-performing assets (NPAs). As the recovery in smaller assets is more cumbersome due to the time and effort required, these assets often end up being written off by banks.

“The biggest challenge that banks face while recovering from small accounts is the expense due to the large volume of cases. We want to tell banks that we can offer specialized services in recovering these loans in a timely manner,” Agarwal said.

Source: Mint