RBI raises minimum capital requirement for ARCs, widens scope of their activity
Oct 11, 2022
Synopsis
These are crucial parts in the revised set of rules for ARCs that the regulator unveiled Tuesday with an aim to improve their regulatory framework and strengthen their governance standard.
The Reserve Bank of India has raised the minimum capital requirement for asset reconstruction companies (ARC) and widened the scope of their activities by allowing them to act as resolution applicants under the bankruptcy law backpedaling from its previous defiance on the matter.
These are crucial parts in the revised set of rules for ARCs that the regulator unveiled Tuesday with an aim to improve their regulatory framework and strengthen their governance standard.
Earlier, RBI opposed ARCs bidding for debt resolution under the bankruptcy courts. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) prohibits ARCs from doing other activities than that of securitisation or asset reconstruction, without RBI's permission.
RBI now said that ARCs with minimum net owned fund of Rs 1000 crore can undertake act as resolution applicants.
In general, the regulator has also asked all ARCs to raise their minimum net-owned fund to in a phased manner -- Rs 200 crore by end-March 2024 and Rs 300 crore by end-March 2026. At present, the minimum standard is pegged 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 prohibition on undertaking incremental business till it reaches the required minimum NOF applicable at that time," RBI said.
The changes in the regulatory framework for ARCs were made following recommendations of an RBI committee which was set up last year to review the working of ARCs.
RBI has also streamlined the settlement process of debts due from borrowers. It said that the settlement amount should preferably be paid in lump sum and only after taking all possible steps to recover the dues.
"The net present value of the settlement amount should generally be not less than the realizable value of securities," the regulator said.
The regulator has also brought about sweeping changes in corporate governance norms for ARCs. These include measures related to the constitution of the board and audit committee and adherence of "fit and proper" criteria for chief executives.
[The Economic Times]
