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Asset Reconstruction Company (ARC)


Why is it in the news?

  • The Reserve Bank of India (RBI) has released a ‘Master Direction’ outlining the regulations and requirements for ARCs to operate in India.

 

More about the news

  • ARCs are required to have a minimum net owned fund (NOF) of Rs 300 crore to commence business. This requirement needs to be maintained on an ongoing basis.
  • Before commencing business, an ARC must apply for registration with the RBI and obtain a certificate of registration (CoR).
  • ARCs are prohibited from investing in land or buildings, except for their own use, up to a maximum of 10% of their owned funds.
  • ARCs are not allowed to raise funds by way of deposits. They need to maintain a capital adequacy ratio of at least 15% of their total risk-weighted assets.

 

About ARCs

路聽聽聽聽聽聽聽 ARCs are established to purchase NPAs or bad assets from banks and financial institutions. This helps the selling institutions to clean up their balance sheets.

路聽聽聽聽聽聽聽 The Union Budget 2021-22 included plans to set up ARCs in India as part of efforts to address stressed assets in the banking sector.

路聽聽聽聽聽聽聽 ARCs in India can be established by both state-owned and private-sector banks. However, there is no equity contribution from the government.

路聽聽聽聽聽聽聽 ARCs play a critical role in resolving stressed financial assets, ultimately improving the overall health of the financial system.

 

 

 

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