Tag: rbi arc

A committee appointed by the Reserve Bank of India has proposed that sale of stressed assets by lenders must be done at an early stage to allow for optimal recovery by asset reconstruction companies.

The committee also recommended that if 66 per cent of lenders by value decide to accept an offer made by an asset reconstruction company (ARC), it should be binding on the remaining lenders and it must be implemented within 60 days of approval.

“Data shows that the performance of the ARCs has been lacklustre, both in terms of ensuring recovery and revival of businesses. Banks and other investors could recover only about 14.29 per cent of the amount owed by borrowers in respect of stressed assets sold to ARCs during the FY 2004-FY 2013 period. Similarly, data shows that approximately 80 per cent of the recovery made by ARCs has come through deployment of measures of reconstruction that do not necessarily lead to revival of businesses,” the committee said.

Online platform mooted

Recognising the need for transparency and uniformity of processes in sale of stressed assets to ARCs, the Committee feels that an online platform may be created for sale of stressed assets. Infrastructure created by the Secondary Loan Market Association (SLMA) may be utilised for this purpose.

Further, considering the critical role played by the reserve price in ensuring true price discovery in auctions conducted for sale of stressed assets, the Committee recommends that for all accounts above ₹500 crore, two bank-approved external valuers should carry out a valuation to determine the liquidation value and fair market value and for accounts between ₹100 crore and ₹500 crore, one valuer may be engaged.

The panel has suggest that the SARFAESI Act may be expanded to allow ARCs to acquire ‘financial assets’ not only from banks and ‘financial institutions’ but also from such entities as may be notified by the Reserve Bank.

“Under these proposed powers, Reserve Bank may consider permitting ARCs to acquire financial assets from all regulated entities, including AIFs, FPIs, AMCs making investment on behalf of MFs and all NBFCs (including HFCs) irrespective of asset size and from retail investors,” it added.

The committee recommended that ARCs should be allowed to sponsor SEBI-registered AIFs with the objective of using these entities as an additional vehicle for facilitating restructuring of the debt acquired by them.