On Wednesday, Governor Shaktikanta Das stated that India’s Reserve Bank would form a committee to study asset reconstruction companies’ operations (ARCs) and help them realize their absolute potential. The central bank has proposed forming a panel to recommend appropriate steps to allow such entities to meet the financial sector’s rising demands.
The regulator’s announcement coincided with the government’s announcement of an ARC’s formation and an asset management company (AMC) to assist public sector banks (PSBs) in dealing with bad loans. “ARCs are critical in the resolution of stressed properties. Their full potential, however, has yet to be realized,” Shaktikanta Das said.
The notion of establishing a panel to study the operation of ARCs, according to Dinesh Khara, chairman of the State Bank of India, could pave the way for faster resolution. Likewise, RK Bansal, managing director of Edelweiss ARC, stated that the RBI committee would be helpful because the ARC industry had never been investigated or considered for a fresh perspective. “The key concern is what ARCs’ future and business model will be. Initially, it was a fee-based business model, but it is gradually transitioning to a fund-based business model, according to Bansal.
“The transition is significant because we anticipate an increase in bad loans and asset turnaround companies like ARCs will be in greater demand than ever before to revive companies and keep the economy afloat,” said Sonam Chandwani, managing partner at KS Legal & Associates.
Market participants also expect the regulator to provide more leadership on ARC regulations. Last year, the ARC association and lenders such as SBI sought clarity from the RBI on these entities’ participation in resolution plans under the Insolvency and Bankruptcy Code (IBC).
The RBI previously rejected a resolution proposal submitted by UV Asset Reconstruction (UVARC) to acquire Aircel assets, citing a failure to comply with Securitisation And Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act guidelines.
