RBI increases minimum net owned fund requirement for ARCs to Rs300 crore

12 Oct 2022 , 09:43 AM

In a turnabout from its prior attitude on the subject, the Reserve Bank of India increased the minimum capital requirement for asset reconstruction companies (ARC) and expanded the range of their activities by permitting them to act as resolution applicants under the bankruptcy law.

These are essential components of the updated guidelines for ARCs that the regulator presented on Tuesday in an effort to strengthen their governance standard and enhance their regulatory framework.

RBI had previously resisted ARCs’ bids for debt relief through bankruptcy courts. Without RBI’s approval, ARCs are not permitted to engage in any operations other than those related to securitization or asset reconstruction under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act).

The RBI has since stated that ARCs can act as resolution applicants if they have a minimum net owned fund of Rs1000 crore.

The regulator has generally requested all ARCs to gradually increase their minimum net-owned fund to Rs200 crore by the end of March 2024 and Rs300 crore by the end of March 2026. The minimum standard is set at Rs100 crore at the moment.

The RBI committee that was established last year to assess the operation of ARCs provided recommendations that led to amendments being made to the regulatory framework for ARCs.

For feedback and suggestions, write to us at [e-mail]