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
· 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. · 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. · ARCs in India can be established by both state-owned and private-sector banks. However, there is no equity contribution from the government. · ARCs play a critical role in resolving stressed financial assets, ultimately improving the overall health of the financial system.
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