RBI Committee to help CRAs achieve their full potential
The Reserve Bank of India will establish a committee to review the functioning of Asset Reconstruction Companies (ARCs) and help them realize their full potential, Governor Shaktikanta Das said on Wednesday. The central bank has offered to form a panel to recommend appropriate measures, enabling these entities to meet the growing needs of the financial sector. The regulator’s announcement came at a time when the government announced the establishment of an ARC and an asset management company (AMC) to help public sector banks (PSBs) cope with doubtful debts. “ARCs play an important role in resolving stressed assets. Their potential, however, is not yet fully realized, ”Shaktikanta Das said.
Dinesh Khara, President, National Bank of India, said the idea of creating a committee to review the functioning of ARCs could open up new avenues for faster resolution. Likewise, RK Bansal, Managing Director of Edelweiss ARC, told the committee in RBI would be beneficial as the CRA industry has never been looked at or considered for a new look. “The big problem is, what is the future and the business model for CRAs? It started out as a fee-based business model, slowly it becomes a fund-based business model, ”Bansal said.
Sonam Chandwani, Managing Partner at KS Legal & Associates, said: “This decision is particularly important as bad debts are expected to increase and asset recovery firms like ARCs will be in greater demand than ever to revive businesses and keep the business going. economy afloat. . “
Market players are also expecting more clarity on ARC regulations from the regulator. Last year, the ARC association and lenders like SBI had sought clarification from RBI on the involvement of these entities in resolution plans under the Insolvency and Bankruptcy Code (IBC). RBI previously rejected a resolution plan submitted by UV Asset Reconstruction (UVARC) for the acquisition of Aircel’s assets, citing that the plan did not comply with SARFAESI law guidelines on securitization and reconstruction of financial assets and the enforcement of security interests.