Central bank sets up committee to review ARC progress and help realize potential

The Reserve Bank of India (RBI) will establish a committee to review the functioning of Asset Reconstruction Companies (ARCs) to help the sector realize its full potential, Governor Shaktikanta Das said on Wednesday.

“Asset rebuilding companies play an important role in resolving stressed assets. Their potential, however, has not yet been fully realized, ”said Das. A committee will undertake a comprehensive review of the functioning of CRAs and recommend measures to enable them to meet the growing demands of the financial sector, he said.

RBI’s concerns about unrealized potential appear to stem from the fact that existing regulations are not conducive to ARC’s involvement as buyers of shares in distressed companies.

Last year, the central bank rejected a resolution plan submitted by UV Asset Reconstruction Co Ltd for the acquisition of assets from Aircel, citing that the plan did not comply with securitization and reconstruction law. financial assets and the execution of securities (Sarfaesi). The UV ARC resolution plan involved the ARC getting a 76% stake in the company within the first five years, with financial creditors getting the rest.

Following this, the ARC Association and lenders such as the State Bank of India (SBI) sought clarification from the RBI on the involvement of ARCs in resolution plans under the Insolvency Code and the Bank of India. bankruptcy (IBC).

Mint reported on September 26 that RBI has decided not to approve the bankruptcy resolution plans submitted by the CRAs. However, CRAs can buy debt from stressed accounts with banks and participate as a creditor under the IBC.

Bankers on Wednesday welcomed the RBI’s decision to set up an expert panel to examine how ARCs work and said it would help resolve asset issues. Banks in India are struggling with bad debts of ??7.38 trillion, a number expected to rise in the coming months as covid-19 returns.

Establishing a committee to review the functioning of ARCs could open up new avenues for faster resolution, SBI Chair Dinesh Khara said.

Since the guidelines for CRAs were released in 2003, they have grown in number and size, but their potential for resolving stressed assets has yet to be fully realized, RBI said Wednesday.

“It was high time RBI looked at the challenges facing the ARC industry. The pricing of assets by banks is an issue where there is always a mismatch of expectations, ”said the head of an ARC.

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