NEW DELHI: The Reserve Bank of India (RBI) on Friday tightened norms for asset reconstruction companies (ARCs), restricting them from buying financial assets from their sponsor firms and lenders on a bilateral basis. However, the regulator has allowed the ARCs to participate in auctions of such assets.
“They (ARCs) may participate in auctions of the financial assets provided such auctions are conducted in a transparent manner, on arm’s length basis and the prices are determined by market forces,” RBI said.
According to the new rules, ARCs cannot acquire financial assets from a bank or financial institution, which is the sponsor of the ARC, on a bilateral basis. RBI also stopped ARCs to buy financial assets from a bank or financial institution, which is either a lender to the ARC or a subscriber to the fund raised by the ARC for its operations and an entity in the group to which the ARC belongs.
In June, the Reserve Bank had permitted ARCs to acquire financial assets from each other on meeting certain conditions, in light of changes made in the Sarfaesi Act, 2002.
“In view of amendment to the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (Sarfaesi) Act, 2002, it has been decided to permit ARCs to acquire financial assets from other ARCs,” RBI had said in a notification.
However, the transfer of assets by one ARC to another would depend on certain conditions such as the transaction has to be settled on cash basis between two ARCs. The selling ARC will utilise the proceeds for redemption of underlying security receipts, RBI had said.
The date of redemption of underlying security receipts and total period of realisation shall not extend beyond eight years from the date of acquisition of the financial asset by the first ARC, it had added.