JM Financial Asset Reconstruction Company Ltd’s (JMFARC) is set to receive a much-needed boost as existing investors, including promoter JM Financial Ltd, have committed to infuse up to Rs 1,000 crore in equity. This move comes after the ARC’s capital adequacy fell below regulatory requirements due to a provision of Rs 846.86 crore for expected credit loss on distressed loans in FY24.
The ARC’s capital adequacy ratio plummeted to 2.91 per cent in March 2024 from 24.67 per cent in March 2023, well below the mandated 15 per cent threshold. As a result, the company’s net loss for FY24 widened to Rs 942.42 crore from Rs 154.93 crore in FY23.
To address this capital shortfall, JM Financial Ltd, which holds a 53.6 per cent stake in the ARC, will contribute up to Rs 536 crore, while JM Financial Credit Solutions Ltd will chip in up to Rs 100 crore through a rights issue. The board of ARC has already approved the fundraising plan.
Despite the financial challenges, the ARC’s assets under management (AUM) saw a seven per cent year-on-year increase to Rs 14,500 crore as of March 31, 2024. Additionally, JM Financial ARC’s cumulative recoveries in FY24 stood at Rs 2,855 crore, achieved through various means such as asset sales, settlements, and proceedings under the Insolvency and Bankruptcy Code (IBC).
The company remains confident about meeting its obligations with the equity infusion and realizations from existing assets. JM Financial ARC assured stakeholders that there would be no impact on the company’s “going concern” principle, and it will continue to operate its business in the normal course.