RBI Allows ARCs To Acquire Bankrupt FirmsRBI has also raised the minimum capital requirement for setting up ARCs to INR 300 crore from existing INR 100 crore
通过Teena Jose•
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The Reserve Bank of India (RBI) has allowed asset reconstruction companies to act as resolution applicants under the insolvency and bankruptcy code (IBC). ARCs can operate as resolution applicants which are not allowed under securitization and reconstruction of financial assets and enforcement of security interest, or the SARFAESI act, as per stated in the revised guidelines released by RBI on Tuesday. The RBI has also mandated new rules aimed at improving the governance and financial health of ARCs, which are the companies that extract value from bad loans.
As per reports, to qualify as an RA, the companies need to have a minimum net owned fund of INR 1000 crore and a board-approved policy to take up the role of an applicant. Another major reform in the new guidelines is that, in case a bank decides to make a clean exit by selling its bad loans for cash, the ARC can now buy by contributing only 2.5 per cent from its own funds with balance from investors.
"The guidelines have mandated enhanced disclosures and higher governance standards, including increased capital requirements. One sector-positive measure is investment in security receipts by ARCs in case cash exit to the seller is reduced to 2.5 per cent of total SRs issued. However, many other important measures for the sector recommended by the ARC committee, like widening the qualified buyer base or seller base to include all regulated entities are missing," said Hari Hara Mishra, UV ARC director, in a statement.
According to the guidelines, ARCs shall not retain any significant influence or control over the corporate debtor after five years from the approval date of the resolution plan by adjudicating authority. The ARCs should also make additional disclosures in their financial statements on assets acquired under IBC, in addition to the existing disclosure requirements.
As per reports, RBI has also raised the minimum capital requirement for setting up ARCs to INR 300 crore from existing INR 100 crore.
