RBI committee to help ARCs realize their full potential:
“In the resolution of strained properties, ARCs play a critical role. “However, their full potential is yet to be realised,” Shaktikanta Das said.
Governor Shaktikanta Das announced on Wednesday that the Reserve Bank of India would form a committee to examine the operations of asset reconstruction companies (ARCs) and assist them in realising their full potential. The central bank has suggested forming a panel to suggest appropriate steps to allow those institutions to meet the financial sector’s rising demands.
The regulator’s announcement came as the government announced the formation of an asset recovery company (ARC) and an asset management company (AMC) to assist public sector banks (PSBs) in dealing with bad loans. “In the resolution of strained properties, ARCs play a critical role.
“However, their full potential is yet to be realised,” Shaktikanta Das said.
The idea of forming a committee to study the workings of ARCs, according to Dinesh Khara, chairman of the State Bank of India, could open up new avenues for faster resolution. RK Bansal, managing director of Edelweiss ARC, agreed that the RBI committee would be helpful because the ARC industry had never been investigated or given a fresh look. “The most pressing question is: what is the future of ARCs, and what is their business model? Initially, it was a fee-based business model, but it is gradually transitioning to a fund-based business model, according to Bansal.
“The change is particularly necessary as bad loans are likely to rise, and asset turnaround firms like ARCs will be in higher demand than ever before to revive companies and keep the economy afloat,” said Sonam Chandwani, managing partner at KS Legal & Associates.
The regulator is also expected to have more information on ARC rules, according to market participants. Last year, the ARC association and lenders such as SBI requested clarity from the RBI on these organisations’ role in settlement plans under the Insolvency and Bankruptcy Code (IBC). The RBI had previously dismissed a resolution proposal submitted by UV Asset Reconstruction (UVARC) for acquiring Aircel properties, citing that the plan did not comply with the SARFAESI Act’s guidelines for securitization and reconstruction of financial assets and protection of security interests.