Context:
RBI highlighted concerns over functioning of Asset Reconstruction Companies (ARCs)
Asset Reconstruction Companies (ARCs):
- A specialized financial institution that buys the Non-Performing Assets (NPAs) from banks and financial institutions
- Significance – Helps banks to concentrate in normal banking activities.
- 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.
- 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).
- SARFAESI Act – Helps reconstruction of bad assets without the intervention of courts.
- 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 – It include Financial Institutions, Insurance companies, Banks, State Financial Corporations, State Industrial Development Corporations, trustee or ARCs registered under SARFAESI and Asset Management Companies registered under SEBI that invest on behalf of mutual funds, pension funds, FIIs, etc.
Source: Business Standard
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)
