ICICI cough up a portion of their non-performing home loans to Arcil

Few of the leading private sector banks have starting taking steps to shell out a portion of their non-performing home loans to the Asset Reconstruction Company (India) Ltd (Arcil).

Arcil is the country's leading accumulation of distressed industrial assets.

According to industry sources ICICI Bank recently had set the trend by selling a bunch of non-performing home loans to Arcil.

Kotak Mahindra Bank and Standard Chartered are also supposed to have followed ICICI by doing similar deals with Arcil. But this could not be verified by DNA Money.

Rajiv Sabharwal, head of retail assets at ICICI Bank has confirmed that ICICI Bank had recently made a deal with Arcil that involves a sale transaction to see bad home loans to Arcil.

"We did this in the last quarter," Sabharwal said.

According to sources ICICI offloaded receivables worth Rs 1,000 crore, but Sabharwal said the number was around Rs 400 crore in the last quarter.

He added the securitized portfolio includes a mix of home loans and other personal loans,

ICICI Bank is the first one in the industry to deal to bundle bad home loans in Arcil's favor.

It is for the first time Arcil's is entering into retail space.

On April 4, 2007, S Khasnobis, managing director and CEO of Arcil, told DNA Money about its plan to speculate into troubled retail home loans market by buying out securities from banks.

Thus far, the asset reconstruction firm has stuck to troubled assets from the corporate sector.

ICICI a belligerent bank has been a pioneer in securitization of loans. "We do play in this segment. We have been securitising both good and bad assets," Sabharwal said. Arcil plans to create a special purpose vehicle to handle mortgage backed securities.

In his last interview, Khasnobis had said the initial investment would be to 'test the markets.' Arcil will create its own "fair debt collection norm and formalize a list of dos and don'ts." This is mainly because a clear policy on bad home loans has yet to be drafted by the regulators.

Arcil is likely to use the skills from its stock up as an asset reconstruction firm to turn bad assets into good. Its new medium in the distressed home loan market will use "compensation" as a prime motif to recover assets. Arcil can provide "temporary cheaper homes" to the borrowers to deluge over the bad times. It will help in discouraging practices such as putting pressure on borrowers. However, ICICI will still manage the securities such as collecting interest and handing it over to Arcil for a small fee. "At a future date when Arcil is ready, we will handover the management of the bad home loans to it," said Sabharwal.