The Asset Reconstruction Company of India Ltd, promoted by the State Bank of India, ICICI Bank, Industrial Development Bank of India and other banks, is slated to start operation by the middle of this month.

The SBI is also awaiting the amendments in the banking secrecy laws to flag off the Credit Information Bureau of India Ltd, its chairman A K Purwar told PTI in New Delhi on Tuesday.

While CIBIL would provide vital information about the companies approaching banks for loans and reduce the risks of defaults, ARCIL would assist in the speedy recovery of sticky assets and clean up the balance of banks and financial institutions.

"ARCIL will start operations in July," Purwar said, adding the company was awaiting the approval of the Reserve Bank.

Initially, SBI along with IDBI and ICICI Bank decided to promote ARCIL with 24.5 per cent stake each.

Later they decided to recast the equity holding structure and ia likely to hold a little less than 20 per cent in ARCIL, slated to start operation with the non-performing and stressed assets worth Rs 7,000 crore (Rs 70 billion).

The ICICI Bank, SBI and IDBI decided to shed a portion of their pies in order to rope in more number of banks including the Bank of India, Bank of Baroda and the UTI Bank.

ARCIL was registered last fiscal with an initial capital of Rs 10 crore (Rs 100 million). ARCIL would create a trust, which would float mutual funds after getting the necessary nod from the Securities and Exchange Board of India.

The legal documents for transfer of assets, identification of assets to be taken up, and other things have been put in place.

Initially, ARCIL would take up stressed assets of ICICI, IDBI and Industrial Finance Corporation of India.

The non-performing assets of banks are mainly on account of the failure to repay working capital loans and would be taken up gradually.

In the first batch, NPAs worth Rs 5,000-7,000 crore (Rs 50-70 billion) have been identified and a roadmap has been worked out. 

ARCIL has classified the NPAs in four groups. Group-I assets would be the NPAs of those companies where there is no need to change the promoters and loans could be restructured.

The Group-II NPAs would be those where the ARCIL believes that the company can be merged with another entity.

In the case of Group-III assets, the unit can be made viable through the change in management. If necessary, an employee stock option scheme would be worked out for the new management as an incentive for reviving the unit.

In the case of Group-IV assets, ARCIL would proceed to the liquidation of the company.

The ARCIL comes after the passage of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Bill in Parliament's last session.

Apart from allowing the setting up of the ARCs, the Bill also empowers banks to take possession of assets of the defaulting companies after a period of time.

The ARCs would takeover the assets of banks and FIs and make its own efforts to recover the bad loans while cleaning off the balance sheets of banks.

The banking sector hopes to reduce the NPAs worth over Rs 1,10,000 crore (Rs 1,100 billion) by at least 20 per cent in a year through the implementation of securitisation laws and ARCs.