The Reserve Bank of India (RBI) has set up a six-member committee to undertake a comprehensive review of the working of Asset Reconstruction Companies (ARCs) in the financial sector ecosystem, and recommend suitable measures for enabling such entities to meet the growing requirements of the financial sector.
The committee, headed by Sudarshan Sen, former Executive Director, RBI, will review existing legal and regulatory framework applicable to ARCs and recommend measures to improve efficacy of ARCs.
It will review the role of ARCs in resolution of stressed assets, including under Insolvency & Bankruptcy Code (IBC), 2016.
To make suggestions
The committee will make suggestions for improving liquidity in and trading of security receipts; and review of business models of the ARCs. It will submit its report within three months from the date of its first meeting.
As of January-end 2021, the number of ARCs registered with the RBI stood at 28.
The committee has been set up in the backdrop of public sector banks working towards setting up a National Asset Reconstruction Company Ltd to sell large stressed assets of ₹500 crore and above, and the RBI rejecting UV ARC’s resolution plan for Aircel as it did not conform with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act.
As per RBI data, as of March-end 2020, the book value of assets acquired by ARCs stood at ₹4,31,339 crore and the Security Receipts issued by them was ₹1,51,435 crore. The amount of Security Receipts completely redeemed was ₹17,947 crore.
The other members of the committee are: Vishakha Mulye, Executive Director, ICICI Bank; PN Prasad, former Deputy Managing Director, State Bank of India; Rohit Prasad, Professor of Economics, MDI, Gurgaon; Abizer Diwanji, Partner, Ernst & Young; and R Anand, Chartered Accountant.
In July 2020, the RBI advised ARCs to put in place Fair Practices Code (FPC), duly approved by their board, in order to achieve the highest standards of transparency and fairness in dealing with stakeholders..
As part of FPC, the RBI asked ARCs to adhere to non-discriminatory practices in both acquisition of financial assets and sale of secured assets, ensuring reasonable fees and expenses charged by them, and confidentiality of borrower information.
Matters pertaining to grievance redressal, outsourcing of activities and use of recovery agents by ARCs are also covered under the code.