Punjab National Bank sells entire stake in ARCIL to Avenue India Resurgence, But Why?

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State-owned lender Punjab National Bank (PNB) has sold its entire 10.01% stake, or 3.25 crore shares, in Asset Reconstruction Company (India) (ARCIL) to Avenue India Resurgence Pte, an arm of the New York-headquartered global investment firm, Avenue Capital Group. The transaction was done in cash, but the bank did not disclose the value of the deal.

“The exchange is hereby informed that in compliance of the RBI guidelines, the bank has sold its entire shareholding in Asset Reconstruction Company (India) Ltd. (ARCIL) to Avenue India Resurgence Pte. Ltd. on March 29, 2023, and has ceased to be a sponsor in ARCIL,” PNB said in a BSE filing.

Asset Reconstruction Company (India) (ARCIL)

Established in 2002, ARCIL is India’s first and among the leading asset reconstruction companies (ARCs) in the country, which has resolved over ₹78,000 crore worth of non-performing assets (NPAs) acquired from Indian banks and financial institutions since its inception. Headquartered in Mumbai, the company is sponsored by prominent banks and financial institutions such as Avenue India Resurgence, State Bank of India (SBI), and PNB.

ARCIL posted a total income of ₹3.04 crore in FY22. In the previous fiscal years FY21 and FY20, it registered total income of ₹1.73 crore and ₹1.66 crore, respectively. The company has also posted consistent growth in revenue from operations, which stood at ₹3.02 crore, ₹1.70 crore, and ₹1.63 crore in FY22, FY21, and FY20, respectively.

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Why PNB sold its stake in ARCIL?

PNB sold its stake in ARCIL to comply with the Reserve Bank of India’s (RBI) revised norms on investment in ARCs by the banks. The RBI has decided that a bank can sponsor only one ARC at a point of time and its stake in other ARC should be less than 10% of the paid-up equity capital of the firm. PNB, along with SIDBI and Bank of Baroda, is a sponsor of India SME Asset Reconstruction, and as per the bank’s annual report for the financial year 2021-22, the ARC is its associate company.

In November last year, the government had approved divestment of the public sector lender’s entire stake in UTI Asset Management Company. The PSU bank, which owned a 15.22% stake in UTI AMC, proposed to sell its entire stake in the mutual fund company in single or multiple tranches for realisation of gain on investment. The UTI AMC’s valuation was pegged at around ₹1,329 crore. The move was being seen as part of the state-owned lender’s decision to pare its non-core assets to boost its capital base.

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