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RBI Set up a Committee Headed by Sudarshan Sen to Review Working of ARCs

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RBI sets up committee to review workingIn April 2021, The Reserve Bank of India (RBI) set up a 6 member committee to evaluate the role of Asset Reconstruction Companies (ARCs) in stressed debt resolution and review their business model. The committee will be headed by Sudarshan Sen, former executive director, RBI.

Members of the Committee:

  • Vishakha Mulye- executive director, ICICI Bank
  • P N Prasad- former deputy managing director , State Bank of India,
  • Rohit Prasad- professor of economics, Management Development Institute, Gurugram,
  • Abizer Diwanji – partner, Ernst and Young and,
  • R Anand – chartered accountant.

Functions of the committee:

  • The committee will review the existing legal and regulatory framework of ARCs and recommend measures to improve their efficiency and in addition will review their business models and role in the resolution of stressed assets, including under the Insolvency and Bankruptcy Code (IBC).
  • The committee has to submit its report within 3 months after its first meeting.

Note- RBI has mentioned about the formation of a committee to support ARC in the 1st Monetary Policy of FY22.

Reason for Set Up:After 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 development of this sector and to facilitate smooth functioning of these companies. However, their potential to resolve stressed assets is yet to be realised completely.

About Asset Reconstruction Company(ARC):

  • It is a financial institution (FI) that buys the NPAs (Non-Performing Assets) or bad loans from banks and FI and helps them to recover from the NPAs.
  • They are registered under RBI and regulated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002.
  • Capital needs: The net owned funds of ARCs should be Rs 100 crore or more and they also have to maintain a capital adequacy ratio of 15% of its risk-weighted assets.
  • ARC will have an Asset Management Company (AMC) to manage and sell bad assets. The banks will get 15% cash and 85% Security Receipts (SR) against bad debt that will be sold to the ARC.

Recent Related News:

On March 22, 2021, the Reserve Bank of India(RBI) set up a five-member Standing External Advisory Committee (SEAC) which is headed by former RBI Deputy Governor Shyamala Gopinath, for evaluating applications for universal banks and small finance banks(SFBs).

About Reserve Bank of India(RBI):

Establishment – 1st April 1935
Headquarters – Mumbai, Maharashtra
Governor – Shaktikanta Das
Deputy Governors – Mahesh Kumar Jain, Michael Debabrata Patra, and M Rajeshwar Rao