Nov 1, 1999|
ICICI, IDBI and IFCI plan common ARC
The Industrial Development Bank of India (IDBI), IFCI and ICICI are planning to form a common asset reconstruction company to clean up their balance sheets. This was reported by a leading national daily. These three financial institutions are yet to finalise the plan.
The move if implemented would result in substantial cost savings as these financial institutions have a large number of common clients who have defaulted on their loans. Therefore, having one ARC (asset reconstruction company) dealing with the defaulters would give these institutions more clout, apart from the cost savings that would arise from such an exercise. As the ARC would function only for the loans common to the three FIs, its focus area will be clearly laid out.
The guidelines for the functioning of the ARC would have to be clearly laid out. For example, the discounts at which it should buy out the bad loans of an organisation form the FI and how should it proceed to recover such loans.
However, for the overall situation to improve, it is the financial institutions that will have to improve their credit appraisal methods. The ARC will solve the problems related to the past debts, but the future build up would have to be sorted out by the concerned FI on its own. Therefore emphasis should be laid on measures to prevent the recurrence of a similar situation in the future.
The intention of setting up a common ARC is, however, well accepted as there are various advantages attached to it.
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