RBI panel on ARCs

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.