The Reserve Bank of India (RBI) has allowed asset reconstruction companies (ARCs) to act as resolution applicants under the Insolvency and Bankruptcy Code (IBC).
Key points
- According to revised guidelines released by RBI on October 11, ARCs can operate as resolution applicants, which is not allowed under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, or the SARFAESI Act.
- To qualify as an RA, the companies need to have a minimum net owned fund of ₹1000 crore and a board-approved policy to take up the role of an applicant.
- The ARC should also have a committee comprising a majority of independent directors to take decisions on proposal of submitting resolution plans under the IBC and it should explore the possibility of preparing a panel consisting of sector-specific management firms and individuals with expertise in running firms and companies.
- RBI has also raised the minimum capital requirement for setting up ARCs to ₹300 crore from the existing ₹100 crore.
- Existing ARCs have been given a glide path to meet the minimum net owned fund requirement by April 2026.
About Asset Reconstruction Companies (ARCs)
- An ARC is a special type of financial institution that buys the debtors of the bank at a mutually agreed value and attempts to recover the debts or associated securities by itself.
- The asset reconstruction companies or ARCs are registered under the RBI and regulated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act, 2002).
