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PwC: Foreign investors in India may be crucial for setting up ARCs

Foreign investors in India may be crucial to set up effective asset reconstruction companies (ARC) and give teeth to the Securitisation Act 2002 not only to provide much of the $5 billion (Rs 24,000 crore) needed initially, but to help domestic institutions shed their conservative outlook. However, it might not be easy attracting such investors who have their hands full in Europe, Japan and other countries.

These are the sentiments expressed by senior management at multinational consulting firm PricewaterhouseCoopers (PwC). The government has agreed upon a technical help with the Asian Development Bank (ADB) to decide on further steps for facilitating the working of ARCs. ADB has mandated PwC, in association with domestic legal firm Amarchand, Mangaldas and Suresh A Shroff and Company and an Australian legal firm Blake Dawson Waldron to review the Indian non-performing loan (NPL) situation and the existing framework for ARCs and make any suggestions for any modifications. PwC India head (corporate finance and recovery services) Ashwani Puri told FE, “Both domestic and foreign firms have shown a keen interest to set up ARCs. But even though the banking system in the country is maintaining good liquidity levels, there are constraints to fund NPLs. The quantum of funds required initially itself would be in the range of $5 billion.”

David Edmonds, PwC leader (financial services), Asia-Pacific, told FE, “In international markets there are companies dedicated to investing in and attempting to turn around companies in distress. They play an important role as in any banking system there is a reluctance to fund NPLs even if there is what may seem a good restructuring package.”

“However when these investors come in to help a company restructure, there can be a sense of confidence amongst domestic investors to lend to such companies knowing they have the right backing. But there is intense competition for such funds from regions like China, Taiwan, Malaysia and even Japan and Europe where the markets are highly distressed,” he said.

“What these firms need are clarifications about the costs of managing ARCs, the tax structures and suitable laws. The legislation in the country is brand new, and part of our brief is to offer clarity about what the law can do,” added Mr Edmonds. The PwC team will be meeting officials from the finance ministry, RBI, some other banks and FIs as well as some ARC promoters and corporate houses over the next two weeks to come up with suitable recommendations.

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