Context:
RBI revises guidelines on settlement of dues of borrowers by Asset Reconstruction Companies (ARC)
Revised guidelines:
- Settlement of accounts with outstanding dues exceeding Rs 1 Crore can only proceed after a thorough evaluation by an Independent Advisory Committee (IAC) composed of financial, legal expertise etc.
- Also, Board of Directors, including at least two independent directors, must deliberate on IAC’s recommendations and evaluate alternative recovery options.
- Settlement of accounts with dues Rs 1 Crore or below can now be cleared by a competent authority established under a board-approved policy
- Officials involved in acquiring the financial asset cannot participate in the approval of settlement to prevent conflicts of interest.
Asset Reconstruction Companies (ARCs):
- A specialized financial institution that buys the Non-Performing Assets (NPAs) from banks and financial institutions
- Significance –
- Quicker resolution of stressed financial assets and frees banks from debt recovery, so that they can focus on their core activities.
- Facilitates development of markets for distressed assets & alternate investment opportunities.
- Injects liquidity into the banking system, improves bank’s valuation & their ability to raise capital etc.
- Registered under – RBI
- Function under the supervision and control of the RBI.
- Regulated under – Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act, 2002).
- Capital Needs for ARCs -ARCs also have to maintain a capital adequacy ratio of 15% of its risk weighted assets.
- Risk-weighted assets – Used to determine the minimum amount of capital that must be held by banks and other financial institutions in order to reduce the risk of insolvency.
- Qualified Buyers are the only persons from whom the ARC can raise funds to purchase the bank’s debts
- Include Financial Institutions, Insurance companies, Banks, State Financial Corporations, State Industrial Development Corporations, trustee or ARCs registered under SARFAESI
- Also include Asset Management Companies registered under SEBI that invest on behalf of mutual funds, pension funds, FIIs, etc.
Source: ET
Previous Year Question
Which one of the following links all the ATMs in India?
[UPSC Civil Service Exam – 2018 Prelims]
(a) Indian Banks’ Association
(b) National Securities Depository Limited
(c) National Payments Corporation of India
(d) Reserve Bank of India
Answer: (c)
