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Eye on indebted cooperatives, Maharashtra sets up asset reconstruction firm, 1st state to do so

Mumbai: The Maharashtra government has set up its own asset reconstruction company (ARC) — becoming the first state to do so — on the lines of a similar arm of the Union government, primarily with the intention of improving the health of cooperative institutions in the state.

The company, named Maha ARC Limited has been formed to restructure firms — cooperatives, semi-government companies, public companies and so on — that are under financial distress or on the brink of it, and with which the Maharashtra government has direct links.

Speaking to ThePrint, Manoj Saunik, head of Maha ARC and additional chief secretary in the state’s finance department, said: “Maharashtra government corporations are a mixed bag when it comes to their financial health, but they are not defaulting on their loans. The asset reconstruction company will especially be useful for many cooperatives — sugar factories, spinning mills and so on — which run into loan defaults, and the state government, being the guarantor for loans, has to step in.”

“We have applied for a licence from the Reserve Bank of India to function as an asset reconstruction company. We are yet to get it,” he added.

Saunik also said Maharashtra is the first state to set up such an asset reconstruction arm.

The ARC move is politically significant, too, as the cooperative sector in Maharashtra has traditionally been dominated by leaders from the Congress and the Nationalist Congress Party (NCP), with the Bharatiya Janata Party (BJP) — now part of the state government, in coalition with the Shiv Sena faction led by CM Eknath Shinde — trying to breach the stronghold.

A finance department official who did not wish to be named told ThePrint: “Last year, the Union government formed the National Asset Reconstruction Company (NARCL) to restructure debts of institutions under financial distress. The finance department thought it would be a good idea to implement a similar concept at the state level.”

The NARCL has been set up by banks, with public sector banks owning 51 per cent in the company, to take over stressed assets of banks and financial institutions and restructure them. However, unlike NARCL, Maha ARC is wholly owned by the Maharashtra government.

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Initial capital of Rs 111 crore

The Maharashtra government incorporated Maha ARC Limited Monday with an initial capital of Rs 111 crore. The government has issued orders to release this capital from the state contingency fund.

The official mentioned earlier told ThePrint that Maha ARC “will attempt to restructure any sick company, semi-government companies that often don’t function transparently, public companies, cooperative societies and so on, with which the Maharashtra government has any kind of link”.

“There are different ways in which the Maharashtra government has connections with such companies. The state government has either given them land or an equity investment, or has subscribed to their shares, given donations or loans, or been a guarantor for their loans,” the official said.

“Restructuring such companies will help protect the interests of shareholders, members and beneficiaries of the company concerned, and even the public at large,” he added.

Saunik said Maha ARC will not run the distressed companies, but will try to sell off their assets or dispose of them. “In a way, knowing this can happen will also make the companies that rely on the state government for debt and loan payments be more responsible in the conduct of their business,” he added.

Maha ARC will have a board of eight members, six of whom will be government officials. According to a resolution issued by the state finance department, the government representatives will be the additional chief secretary of finance, the secretary of financial improvement, the principal secretary of expenditure, the additional chief secretary of the cooperation department, and the principal secretaries of the textiles and industries departments. Other than these members, there will be two independent directors.

(Edited by Nida Fatima Siddiqui)

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