The RBI committee on asset reconstruction companies (ARCs), which will review the existing legal and regulatory framework applicable to these entities, has invited views and suggestions from stakeholders.
The suggestions can be given to the committee till May 31, 2021.

On April 19, the central bank had set up a committee to undertake a comprehensive review of the working of asset reconstruction companies in the financial sector ecosystem and recommend suitable measures to enable them to meet the growing requirements.

This panel was set up under the chairmanship of Sudarshan Sen, former executive director, RBI.

According to the terms of reference of the committee, it will review the existing legal and regulatory framework applicable to ARCs and recommend measures to improve the efficacy of these companies.
It will also review the role of ARCs in the resolution of stressed assets, including under Insolvency and Bankruptcy Code (IBC), and give suggestions for improving liquidity in and trading of security receipts (SRs). Besides, it has been asked to review the business models of the ARCs.

The panel is scheduled to submit its report within three months from the date of its first meeting.

According to an RBI bulletin, the growth of the ARC industry in India has not been consistent over time and not always synchronous with the trends in non-performing assets (NPAs) of banks and non-banking financial companies (NBFCs).

After the enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act in 2002, regulatory guidelines for ARCs were issued in 2003, to enable the sector to develop and facilitate the smooth functioning of ARCs. Since then, while ARCs have grown in number and size, their potential for resolving stressed assets is yet to be realised fully.

According to an article in the RBI April bulletin, the growth of the ARC industry in India has not been consistent over time and not always been synchronous with the trends in non-performing assets (NPAs) of banks and non-banking financial companies (NBFCs).

The article said that despite the increase in the number of ARCs since they were first allowed, the growth in their asset under management (AUM) has been largely trendless except for a major spurt in 2013-14.

“When compared with the volume of NPAs of banks and NBFCs, the AUM of ARCs has been on a declining trend, except during the period of high growth in AUM around 2013-14. Going forward, the introduction of a new asset reconstruction company for addressing the NPAs of public sector banks may also shape the operations of the existing ARCs. There is a definite scope for the entry of a well-capitalised and well-designed entity in the Indian ARC industry; such an entity will strengthen the asset resolution mechanism further,” the article said.