Facts for Prelims (FFP)
Source: BS
Context: The Reserve Bank of India (RBI) has raised supervisory concerns regarding the functioning of asset reconstruction companies (ARCs).
What are ARCs?
Asset Reconstruction Companies (ARCs) are financial institutions that acquire and manage stressed assets from banks and financial institutions. Registered under Section 3 of the SARFAESI Act, 2002, ARCs face several challenges, including issues like back-door entry of defaulting promoters, lengthy settlement processes, and non-transparent practices.
Previously, in April RBI issued a master direction for ARCs:
- The direction stipulates that ARCs must maintain a minimum capital requirement of Rs 300 crore, with existing ARCs given until March 31, 2026, to meet this threshold.
- Non-compliant ARCs will face supervisory action, including the prohibition on incremental business until compliance is achieved.
- ARCs with a minimum Net Owned Fund (NOF) of Rs 1000 crorecan act as resolution applicants and are permitted to invest in specified instruments, subject to certain conditions and caps on investment.
