RBI's compiled master direction on ARCs to be effective from April 24

Mumbai, Apr 24, 2024 

'Non-complying ARC shall be subject to supervisory action,' says regulator 

The Reserve Bank of India (RBI) on Wednesday released a compiled master direction raising the minimum capital requirement for asset reconstruction companies (ARCs) to begin securitization to Rs 300 crore from Rs 100 crore as on October 11, 2022.

The central bank said that the regulation would be effective from April 24, 2024. ARCs, as on October 11, 2022, have been provided a glide path to achieve the minimum required Net Owned Fund (NOF) of Rs 300 crore.

ARCs must have Rs 200 crore by March 31, 2024 and Rs 300 crore by March 31, 2026.

“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,” said RBI.

ARCs with a minimum NOF of Rs 1,000 crore can act as resolution applicants.

ARCs may deploy funds for undertaking restructuring of acquired loan account with the sole purpose of realising dues in government securities and deposits with scheduled commercial banks, Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD) or such other entity as may be specified by the RBI.

ARCs can also invest in short-term instruments like money market mutual funds, certificates of deposit and corporate bonds/ commercial papers that have a short-term rating equivalent to the long-term rating of AA or above by an eligible credit rating agency (CRA). Such investments will be subject to a cap of 10 per cent of the NOF of the ARC on maximum investment in such short-term instruments.

[The Business Standard]