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Asset reconstruction companies (ARCs)

Facts for Prelims (FFP)

 

Source: Business Standard

 

Context: The Reserve Bank of India (RBI) has issued a master direction for asset reconstruction companies (ARCs), effective from April 24, 2024.

  • These have been issued in the exercise of the powers conferred by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
  • The guidelines stipulate that ARCs must maintain a minimum capital requirement of Rs 300 crore, with existing ARCs given until March 31, 2026, to meet this threshold.
  • Non-compliant ARCs will face supervisory action, including the prohibition on incremental business until compliance is achieved.
  • ARCs with a minimum Net Owned Fund (NOF) of Rs 1000 crore can act as resolution applicants and are permitted to invest in specified instruments, subject to certain conditions and caps on investment.

 

An Asset Reconstruction Company (ARC) is a financial institution that buys Non-Performing Assets (NPA) or bad assets from banks and financial institutions so that the latter can clean up their balance sheets.