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RBI raises minimum capital requirements for ARCs to start securitisation to ₹300 crore
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
Under the new directives, ARCs, as of October 11, 2022, have been granted a transition period to achieve the revised minimum Net Owned Fund (NOF) requirement.
To support the resilience and efficiency of Asset Reconstruction Companies (ARCs), the Reserve Bank of India (RBI) on Wednesday (April 24) increased the minimum capital requirement for them to initiate securitisation.
Effective from April 24, 2024, the RBI has raised the minimum capital requirement for ARCs from ₹100 crore to ₹300 crore.
Under the new directives, ARCs, as of October 11, 2022, have been granted a transition period to achieve the revised minimum Net Owned Fund (NOF) requirement.
They are expected to maintain a NOF of ₹200 crore by March 31, 2024, and reach the ₹300 crore mark by March 31, 2026.
Non-compliance with these milestones will invite supervisory action, including restrictions on incremental business activities until the requisite NOF levels are attained, cautioned the RBI.
Furthermore, ARCs with a minimum NOF of ₹1,000 crore will be eligible to act as resolution applicants.
The RBI’s directive also expands the avenues for deploying funds by permitting ARCs to undertake restructuring of acquired loan accounts with the sole aim of realising dues in government securities and deposits with specified financial entities like scheduled commercial banks, Small Industries Development Bank of India (SIDBI), and National Bank for Agriculture and Rural Development (NABARD).
Moreover, ARCs are now authorised to invest in short-term instruments such as money market mutual funds, certificates of deposit, and corporate bonds/commercial papers with a short-term rating equivalent to AA or above.
However, these investments are subject to a cap of 10% of the ARC’s NOF on maximum investment in such short-term instruments.
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