Previously, the central bank had opposed the proposal of allowing ARCs to bid for debt resolution under bankruptcy courts. Now the apex bank said that ARCs with a minimum net owned fund of Rs 1,000 crore can act as resolution applicants
The Reserve Bank of India (RBI) increased the minimum capital requirement for asset reconstruction companies (ARC) on 11 October. RBI allowed ARCs to act as resolution applicants under the bankruptcy law widened the scope of their activities.
The RBI unveiled these crucial parts in the revised set of rules for ARCs. These are released with an aim to improve the regulatory framework and strengthen governance standards of ARCs.
Previously, the central bank had opposed the proposal of allowing ARCs to bid for debt resolution under bankruptcy courts.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act prohibits ARCs from doing other activities than that of securitisation or asset reconstruction, without seeking RBI’s permission.
Now the apex bank said that ARCs with a minimum net owned fund of Rs 1,000 crore can act as resolution applicants.
As a whole, the RBI has also asked all the ARCs to increase their minimum net-owned fund thresholds limits in a phased manner. This would follow as Rs 200 crore by March 2024 end and Rs 300 crore by March 2026 end. Currently, the minimum standard is fixed at Rs 100 crore.
“In case of non-compliance at any of the above stages, the non-complying ARC shall be subject to supervisory action, including the prohibition on undertaking incremental business till it reaches the required minimum NOF applicable at that time,” said the RBI in a notification.
Last year, an RBI committee was set up to review the working of ARCs. The current changes in the regulatory framework for ARCs were made following recommendations of the same committee. On streamlining the settlement process of debts due from borrowers the RBI said that preferably the settlement amount should be paid in lump sum only after all possible steps to recover the dues are considered.