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RBI panel on ARCs

  • IASbaba
  • November 5, 2021
  • 0
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RBI panel on ARCs

Part of: Prelims and GS-III – Economy

Context To streamline the functioning of asset reconstruction companies (ARCs), the Reserve Bank panel has come out with a host of suggestions.

Background:

  • The RBI had set up a committee headed by Sudarshan Sen to undertake a comprehensive review of the working of asset reconstruction companies (ARCs) in the financial sector ecosystem and recommend suitable measures for enabling them to meet the growing requirements.

Suggestions:

  • Create an online platform for the sale of stressed assets.
  • Allow ARCs to act as resolution applicants during the IBC process.
  • The scope of Section 5 of the SARFAESI Act be expanded to permit ARCs to acquire financial assets from all regulated entities.
  • For accounts above ₹500 crore, two bank-approved external valuers should carry out a valuation to determine liquidation value and fair market value.
  • Also, the final approval of the reserve price should be given by a high-level committee that has the power to approve the corresponding write-off of the loan.

What is an Asset Reconstruction Company (ARC)?

  • It is a specialized financial institution that buys the Non Performing Assets (NPAs) from banks and financial institutions so that they can clean up their balance sheets.
  • Banks rather than going after the defaulters by wasting their time and effort, can sell the bad assets to the ARCs at a mutually agreed value.
  • This helps banks to concentrate on normal banking activities. 
  • The ARCs are registered under the RBI.

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