Aiming to strengthen the securitisation sector which plays a vital role in the management of distressed financial assets, the Reserve Bank of India on 11 October raised the minimum capital requirement for setting up an asset reconstruction company (ARC) to ₹300 crore from the existing ₹100 crore.
As per the RBI circular amending the existing regulatory framework for such entities, the existing ARCs have been given a glide path to meet the minimum net owned fund (NOF) requirement till April 2026.
“Consequently, any ARC obtaining the certificate of registration on or after the date of this circular shall not commence the business of securitisation or asset reconstruction without having minimum NOF of ₹300 crore,” the circular said, adding the guidelines are effective immediately.
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Previously, each ARC was required to frame a board-approved policy laying down the broad parameters for settlement of debts due from the borrowers.
Also, the the board was permitted to delegate powers to a committee comprising any director and/or functionaries of the ARC for taking decisions on the proposals for settlement of dues.
However, reviewing the old guidelines, the RBI said the guidelines for the reconstruction of financial assets through settlement of dues payable by the borrowers have been modified.
“Settlement of dues with the borrower shall be done only after the proposal is examined by an Independent Advisory Committee (IAC) which shall consist of professionals having technical/ finance/ legal background,” it said.
After assessing the financial position of the borrower, IAC projected earnings and cash flows of the borrower and other relevant aspects, shall give its recommendations to the ARC regarding settlement of dues with the borrower.
The new circular furtehr mentioned that any management fee or incentives charged towards the asset reconstruction or securitisation activity should come only from the recovery effected from the underlying financial assets.
Apart from this, ARCs ARCs will have to constitute an audit committee of the board comprising of non-executive directors only.
The central bank had to set up a committee to undertake a comprehensive review of the working of ARCs previously and and recommend suitable measures for enabling them to function in a more transparent and efficient manner.
The regulatory framework for ARCs has been amended based on the committee’s recommendations and feedback from stakeholders, the RBI said.
With PTI inputs.
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