Arcil Under Stress from Large Lenders, says RBI

SBI, ICICI, PNB & IDBI Bank acting as pressure group to influence functioning of asset reconstruction firm

 Large Indian lenders SBI, ICICI Bank, PNB and IDBI Bank are acting as a 'pressure group' to influence the functioning of the country's largest stressed assets firm, Arcil, according to the Reserve Bank of India. The regulator's remark in the inspection report of Arcil puts a question mark on deals that banks cut with the asset reconstruction company to palm off their bad loans. 

The report has also pointed out a string of accounting and transaction irregularities in Arcil, whose main shareholders include SBI, ICICI Bank, PNB and IDBI Bank. While the report does not highlight specific cases where these large institutions have used their influence, it categorically states: "The directors representing the sponsor institutions—SBI, ICICI Bank, IDBI Bank and PNB—were functioning as pressure groups to further sponsors' agenda; these directors were of late holding separate meetings and forwarding their brief to the company, which the company was supposed to place as agenda for discussion in the meetings of the board.'' 
The RBI said they were "controlling the functioning of the company in an indirect manner". 
When contacted by ET, spokespersons and senior officials from ICICI Bank, IDBI Bank and SBI declined to comment. 
Banks sell bad loans to asset reconstruction companies like Arcil in exchange for cash or security receipts issued by the latter. So far, Arcil has acquired stressed assets with principal value of around . 24,000 crore from various banks, of which the highest—. 9,000 crore—is from the secondlargest lender by value, ICICI Bank. 
The RBI said Arcil also inflated its earnings. "The accounting policies of the company were modified very frequently during the period with the approval of the board and the latest change has resulted in inflating the profit of the company by . 84.48 crore as on March 31, 2010," it said. "Even the existing policies which provided for recognition of income on accrual basis and its reversal only if the same is not realised for more than two years were not in conformity with RBI guidelines which require the reversal of such income if it remains due for more than 180 days." 
Arcil, in its response to ET, said, "The RBI has forwarded their initial observations to Arcil and sought our comments or response on the same."