As the Reserve Bank of India (RBI) had indicated earlier, it has now reviewed the regulatory framework for Asset Reconstruction Companies (ARCs) and several important changes have been made.
The Reserve Bank of India (RBI) has now allowed asset reconstruction companies (ARCs) to act as resolution applicants under the Insolvency and Bankruptcy Code (IBC). ARCs are currently prohibited from engaging in any business other than securitisation, asset reconstruction, or the activities listed in Section 10(1) of the SARFAESI Act, without the RBI's prior clearance.
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However, to qualify as resolution applicants, the companies -
ARCs will, by transferring funds, invest in the security receipts (SR) at a minimum of either 15 percent of the transferor’s investment in the SR or 2.5 percent of the total SRs that are issued, whichever is higher on an ongoing basis.
The management fee or incentives which are charged towards the reconstruction or securitisation activity can now only come from the recovery effected from the underlying financial assets.
There are several changes with respect to governance where for instance -
Other than this, settlement of dues by borrowers which is often seen under one-time settlement can be done by ARCs only after the proposal is examined by an independent advisory committee. This settlement should only be done after all possible steps for recovery have been exhausted.