Asset Reconstruction Companies

01 May Asset Reconstruction Companies

(GS PAPER-3, ECONOMY

SOURCE- THE HINDU)

Context-

 The RBI  set up a committee to undertake a comprehensive review of the working of asset reconstruction companies in the financial sector ecosystem

 Key points-

• The six member committee will be headed by Sudarshan sen   former executive director of RBI
• As per the terms of reference of the committee the panel will review the existing legal and regulatory framework applicable to ARCs And recommended measure to improve efficacy of ARC-

1. The business model of a RC
2. It give suggestions for improving liquidity in and trading of security receipts
3. The committee will submit its report within 3 months from the date of its first meeting

about Asset Reconstruction Company-

 Objective-

•  It is a specialized financial institution that buy the non performing asset from bank and Financial Institutions so that they can clean up their balance sheet
•  This helps banks to  concentrate in normal banking activities

 legal basis-

• The securitization and reconstruction of financial assets and enforcement of security interest Act 2002 to provide the legal basis for the setting up of ARCs in India
• The act help the construction of bad assets without the intervention of court

Capital need for ARCs-

• As per the amendment made in the Act in 2016 and RCA should have a minimum net owned fund of rupees 2 crore
• The RBI raised this amount to rupees hundred crore in 2017

-Khyati Khare