Piramal Enterprises Ltd

Hi, I am not aware of the details of ARC transaction but know how an ARC transaction happen. Will illustrate from an example below.

1. Suppose I have bad assets of 100cr (please note this is gross) and against this I have a provision of 50cr so net asset or we call Net book value is 50cr.

2. Now suppose I get a valuation of 70cr for my net book value so this will be considered as 40% premium on my NBV.

3. Now I get 85% as security receipt and 15% as cash on the valuation I receive. In my case the valuation is 70cr hence 60cr security receipt and 10cr cash.(approx.)

4. One very important point here is each account is treated individually. This means if my bad asset has cumulatively 5 accounts A,B,C,D,E then I would calculate profit or loss for each account individually.

Let say the 10cr cash which I received is for an account which have a net book value of 15cr that means I would recognize 5cr loss. This also means my balance 35cr of NET book value(50-15) gets 60cr as valuation.

SR(85%) 60cr valuation for 35cr of net book value
CASH(15%) 10cr valuation for 15cr of net book value
TOTAL 70cr valuation for 50cr of net book value

In short if the valuation is higher than NBV I recognize profit ( if cash recovered) and if valuation is lower than NBV I recognize loss.(regardless of cash received or not)

Even in SR if any account individually has a valuation less then NBV I recognize loss. The loss can be recognized over 2 quarters.

5. The excess valuation of my SR 25cr (60cr-35cr) will act as provision for my premium valuation of SR. So the NET SR which I will show in books is 35cr and 25cr as provision for my premium valuation which is 25cr.(60 – 35cr).

If the entire bad loan just has 1 account then the transaction is very simple.

I would recommend everybody to go through Yesbank Q3 concall and result as they concluded the largest ARC transaction.