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.
