RBI allows ARCs to act on resolution applicants

The central bank Tuesday 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. 

These are crucial parts in the revised set of rules for ARCs the Reserve Bank of India (RBI) unveiled Tuesday with an aim to improve the regulatory framework and strengthen governance standards of ARCs. 

Earlier, the RBI opposed the proposal allowing ARCs to bid for debt resolution under bankruptcy courts. 

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act prohibits ARCs from doing other activities than that of securitisation or asset reconstruction, without the RBI’s permission. 

The RBI now said that ARCs with a minimum net owned fund of ₹1,000 crore can act as resolution applicants. 

In general, the regulator has also asked all ARCs to raise their minimum net-owned fund thresholds in a phased manner ₹200 crore by end-March 2024 and ₹300 crore by end-March 2026. At present, the minimum standard is pegged at ₹100 crore.