RBI permits ARC to buy financial assets from other entities

The Reserve Bank of India (RBI) has permitted Asset Reconstruction Companies (ARCs) to acquire financial assets from peers i.e. other such entities. However, RBI, the apex banking regulator cleared that all such transactions have to be settled in cash.

Key Highlights :-

The ARCs have been allowed to acquire financial assets from other ARCs, in the view of amendment to the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002.

Conditions: for transfer of assets by one ARC to another includes-

Price discovery for such transaction shall not be disadvantageous to interest of Security Receipt holders. Also selling ARC must utilise proceeds so received for redemption of underlying security receipts.
Redemption date of underlying Security Receipts and total Period of Realisation (conversion of assets, goods & services into cash or receivables through sale) should not extend beyond a period of 8 years from date of acquisition of financial asset by 1st ARC.
All such transactions have to be settled in cash.
Significance: This decision by RBI will help improve liquidity in Asset Reconstruction Companies’ market.

About SARFAESI Act, 2002

It lets banks as well as other financial institutions (FIs) of India auction commercial or residential properties (of defaulters) for purpose of loan recovery.Asset Reconstruction Companies (ARC) was established under this act.It was made to identify and rectify problem of Non-Performing Assets (NPAs) via multiple mechanisms.

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