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RBI amends regulatory framework for asset reconstruction firms — details here

RBI amends regulatory framework for asset reconstruction firms — details here

RBI amends regulatory framework for asset reconstruction firms  — details here
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By Ritu Singh  Oct 12, 2022 4:08:17 PM IST (Published)

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 -
  • Are required to have a minimum net own fund of at least Rs 1,000 crore
  • They should have a board-approved policy for taking up the role of a resolution applicant
  • In the case of a specific corporate insolvency process, ARCs cannot retain any significant influence or control after five years from the date of approval of the resolution plan
  • Make more disclosure with respect to the assets they have acquired under IBC among other conditions.
  • 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 -
    • The chair of the board will have to be an independent director
    • The tenure of the MD, CEO and Whole Time Directors cannot be more than five years
    • They will, of course, be eligible for reappointment and they cannot continue beyond the age of 70 years
    • 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.
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