RBI to set up task force to review working of asset reconstruction companies

Mumbai: India’s central bank on Wednesday announced the setting up of a task force to review the regulatory framework governing asset reconstruction companies (ARCs). Governor Shaktikanta Das said that the committee would make recommendations on the policy environment for rehabilitation companies.

The committee is likely to look into the long-standing request of ARCs to participate in the bankruptcy process and lower the cost of participating in buying distressed assets.

“ARCs play an important role in the resolution of stressed assets, their potential, however, is yet to be fully realised,” Governor Das said as part of his monetary policy statement on Wednesday. “It is proposed to constitute a committee to undertake a comprehensive review of the working of ARCs and recommend measures to enable these entities to meet the growing requirements of the financial sector.”

While the RBI has not outlined the terms of reference of this committee, in 2011 a Key Advisory Group (KAG) on ARC sector reforms was constituted by the Ministry of Finance with the participation of all stakeholders and regulators. The committee had reviewed the then legal, regulatory and institutional framework for ARCs plus devised an action plan including policy initiatives for orderly growth of the sector.

“The proposed committee is expected to analyse the challenges faced by ARCs and recommend measures for enhancing functional effectiveness of ARCs to play a significant role in distressed debt resolution, particularly in the background of likely sharp increase in NPAs in the system.” Hari Hara Mishra, director, UV ARC and who was associated with the drafting of the 2011 KAG report.

ARCs have in the past requested the RBI to issue guidelines regarding their eligibility to act as Resolution Applicant in insolvency cases. Currently, several high stake insolvency cases like Reliance Communications and Aircel are stuck because the regulator wants ARCs to go by the rules dictated by the Sarfaesi law.

Although the bankruptcy code is a recent piece of legislation, it allows ARCs to act as resolution applicants.