Introduction: The Reserve Bank of India (RBI) has issued new guidelines under the Master Direction – Reserve Bank of India (Asset Reconstruction Companies) Directions, 2024, effective from April 24, 2024. This directive raises the minimum capital requirements for Asset Reconstruction Companies (ARCs) to Rs 300 crore.
Key Highlights:
- Minimum Capital Requirement: Increased from Rs 100 crore to Rs 300 crore.
- Transition Period: ARCs in existence since October 11, 2022, must achieve a minimum Net Owned Fund (NOF) of Rs 200 crore by March 31, 2024, and Rs 300 crore by March 31, 2026. Failure to comply will result in supervisory action.
- Eligibility for Resolution Applicants: ARCs with a minimum NOF of Rs 1,000 crore can act as Resolution Applicants under the Insolvency and Bankruptcy Code (IBC), 2016.
- Investment Flexibility: ARCs can invest in short-term instruments like money market mutual funds, certificates of deposit, and corporate bonds/commercial papers rated AA or higher, up to 10% of their NOF.
- Capital Adequacy Ratio: ARCs must maintain a capital adequacy ratio of at least 15% of their total risk-weighted assets.
Operational Requirements:
- Registration: ARCs must apply for and obtain a Certificate of Registration (CoR) from the RBI before commencing securitisation or asset reconstruction operations.
- Operational Timeline: Operations must begin within six months of receiving the CoR, with possible extensions of up to twelve months.
- Policy Development: Within ninety days of receiving the CoR, ARCs must develop a Board-approved financial asset acquisition policy and a policy for financial asset realization, ensuring the realization period does not exceed five years.
- Approval for Appointments: RBI approval is required for the appointment or reappointment of Directors, Managing Directors (MDs), or Chief Executive Officers (CEOs).
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