RBI committee to help ARCs realize their full potential

The announcement from the regulator came at a time when the government has announced setting up an ARC and an asset management company (AMC) to help public sector banks (PSBs) dealing with bad loans.

The Reserve Bank of India will constitute a committee to review the working of asset reconstruction companies (ARCs) and help them realise their full potential, Governor Shaktikanta Das said on Wednesday. The central bank has proposed to constitute a panel to recommend suitable measures, enabling such entities to meet the growing requirements of the financial sector. The announcement from the regulator came at a time when the government has announced setting up an ARC and an asset management company (AMC) to help public sector banks (PSBs) dealing with bad loans. “ARCs play an important role in the resolution of stressed assets. Their potential, however, is yet to be fully realised,” Shaktikanta Das said.

Dinesh Khara, chairman, State Bank of India, said the idea of setting up a committee to review the working of ARCs could open up new vistas of faster resolution. Similarly, RK Bansal, managing director of Edelweiss ARC, said the committee by RBI would be beneficial as the ARC industry was never examined or considered for a fresh look. “The major issue is that what is the future, and business model for ARCs? Initially, it was a fee-based business model, slowly it is becoming fund-based business model,” Bansal said.

Sonam Chandwani, managing partner at KS Legal & Associates, said, “The move is especially important as the bad loans are expected to surge, and asset turnaround companies like ARCs will be in higher demand than ever before to revive companies and keep the economy afloat.”

Market participants are also expecting more clarity on ARC regulations from the regulator. Last year, the ARC association and lenders like SBI had sought clarifications from RBI on the involvement of these entities in resolution plans under the Insolvency and Bankruptcy Code (IBC). RBI had earlier rejected a resolution plan submitted by UV Asset Reconstruction (UVARC) for acquiring assets of Aircel, citing that the plan did not conform to securitisation and reconstruction of financial assets and enforcement of security interest (SARFAESI) Act guidelines.