RBI panel calls for overhauling ARC regulations

A Reserve Bank of India (RBI) panel has suggested for overhauling rules to govern Asset Reconstruction Companies (ARC).

Key Points

  • Overhauling ARC regulations will enhance the availability of bad loans for transactions.
  • It will also bring in a wide set of investors for distressed assets to the market.

Recommendations of the panel

RBI panel recommends for:

  1. Purchase of loans classified as fraud
  2. An online system for transparency in transactions
  3. permission to transact in financial assets that are owned by mutual funds.
  4. Defining ‘substantial part of business’ for ensuring change in management
  5. Permission to participate in the resolution under Insolvency and Bankruptcy Code (IBC) by ARCs.
  6. Streamlining and standardising sale process of stressed assets undertaken by banks or Financial Institutions (FIs).

About the Asset Reconstruction Company (ARC)

ARC is a specialized financial institution which buys the Non-Performing Assets (NPAs) from banks and financial institutions in order to clean up their balance sheets. ARC helps banks to concentrate in normal banking activities. It provides opportunities for banks to sell bad assets to ARCs, at mutually agreed value, rather than going after the defaulters.

What is the Legal Basis of ARC?

ARCs in India have been constituted under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. SARFAESI Act helps in reconstruction of bad assets, and nullify the intervention of courts. ARCs are required to have a minimum net owned fund of Rs 2 crores, as per amendment in SARFAESI Act 2016.

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