The ARC shall have a Board-approved policy regarding taking up the role of Resolution Applicant which may, inter alia, include the scope of activities, internal limit for sectoral exposures, etc.
FinTech BizNews Service
Mumbai, April 24, 2024: The Reserve Bank of India has today issued the Master Direction – Reserve Bank of India (Asset Reconstruction Companies) Directions, 2024. The Directions have come into effect immediately. The Master Direction consolidates the existing regulatory guidelines issued to ARCs vide Master Circular on ARCs and Master Direction - Fit and Proper Criteria for Sponsors - Asset Reconstruction Companies (Reserve Bank) Directions, 2018.
To ensure prudent and efficient functioning of ARCs and to protect the interest of investors, Reserve Bank of India has issued the Master Direction – Reserve Bank of India (Asset Reconstruction companies) Directions, 2024 (the Directions), hereinafter specified.
An ARC, which has obtained a CoR from the Reserve Bank, can undertake both securitisation and asset reconstruction activities. An ARC is required to have a minimum net owned fund (NOF) of Rs300 crore and thereafter, on an ongoing basis.
In terms of the provision of Section 10(2) of the Act, ARCs have been permitted to undertake those activities as Resolution Applicants under Insolvency and Bankruptcy Code, 2016 (IBC) which are not specifically allowed under the Act. This permission shall be subject to the following conditions: (i) The ARC has a minimum NOF of Rs1,000 crore. (ii) The ARC shall have a Board-approved policy regarding taking up the role of Resolution Applicant which may, inter alia, include the scope of activities, internal limit for sectoral exposures, etc. (iii) A committee comprising of a majority of independent directors shall be constituted to take decisions on the proposals of submission of resolution plan under IBC.
In respect of a specific corporate insolvency resolution process (CIRP), the ARCs shall not retain any significant influence or control over the corporate debtor after five years from the date of approval of the resolution plan by the Adjudicating Authority under 10 IBC. In case of non-compliance with this condition, the ARCs shall not be allowed to submit any fresh resolution plans under IBC either as a Resolution Applicant or a Resolution Co-Applicant. An ARC may, as a sponsor and for the purpose of establishing a joint venture, invest in the equity share capital of another ARC. An ARC may deploy its funds for undertaking restructuring of acquired loan account with the sole purpose of realizing its dues.
An ARC shall not raise monies by way of deposit.
Every ARC shall frame a Board-approved 'financial asset acquisition policy' within ninety days of grant of the CoR which shall provide that transactions take place in a transparent manner and at a fair price in a well-informed market and the transactions are executed on arm’s length basis by exercise of due diligence.
Before bidding for the stressed assets, ARCs may seek adequate time, of not less than two weeks, from the auctioning banks to conduct a meaningful due diligence of the account by verifying the underlying assets.
The share of financial assets to be acquired from the bank/ financial institution should be appropriately and objectively worked out keeping in view the provision in the Act requiring consent of secured creditors holding not less than 60% of the amount outstanding to a borrower for the purpose of enforcement of security interest.
For further details: https://www.rbi.org.in
