RBI raises the minimum net owned fund requirement for Asset Reconstruction Company to Rs 300 crore
Tags: Economy/Finance
The Reserve Bank of India (RBI) has raised the minimum net owned fund (NOF) requirement of the existing Asset Reconstruction Company (ARC) to Rs 300 crore from the present Rs 100 crore by March 2026.
The NOF for the newly set up ARC will be Rs 300 crore but for the existing ARC, the new NOF requirement is to be achieved phase wise.
The existing ARC will have to increase their NOF to Rs 200 crore by 31st March 2024 and to Rs 300 crore by 31st March 2026.
In a circular issued on 11 October RBI said that it has taken this step on the recommendation of the Sudarshan Sen committee that was set up by the RBI in 2021 to review the functioning of the ARC.
Asset Reconstruction Company
Asset Reconstruction Company is a financial company which are set up under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
They are registered as NBFC (Non-Banking Financial Company)
They are regulated by the RBI.
ARC specializes in loan recovery which has turned into Non-Performing Assets (NPA).
ARC buys these loans from the banks at a discount and then recovers the loan amounts from the defaulting borrower. However they should not be confused with loan recovery agents employed by banks, which often use illegal loan recovery methods.
NPA are those loans where the borrower fails to repay either the principal amount or the interest amount or both on the loans taken from banks and financial institutions for the 90 consecutive days .(However agricultural loans and unsecured loans are do not comes under SARFAESI Act)
ARCIL (Asset Reconstruction Company of India Limited), was the first ARC to be set up in India in 2022.
Governor of RBI: Shaktikanta Das
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