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The RBI on December 6, 2019, has issued notification for Asset Reconstruction Companies restricting them from acquiring financial assets on a bilateral basis from there sponsor firms, lenders or subscribers, and to the group entity belonging to ARC.
However, the RBI has stated that they 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.
Asset Reconstruction Company India (ARCIL) which is sponsored by State Bank of India, ICICI Bank, Punjab National Bank, and IDBI Bank will be affected the most by this restriction. Other ARC’s sponsored by prominent Foreign Investors are Edelweiss ARC, JM Financial ARC, and Phoenix ARC, which is promoted by the Kotak group.
(i) Restrictions have been imposed on acquiring financial assets from the following on a bilateral basis:
(ii) However, the ARC’S have been permitted to participate in auctions of the Financial Assets provided such auctions are conducted in:
RBI had permitted
ARC’S to acquire financial assets from other ARC’s on meeting certain
conditions as per the amendment made in the SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial
Assets and Enforcement of
Securities Interest Act) in
June. However, the RBI has
clear that the transaction
of ARC’S with
other ARC’S can be
done on meeting
This new rule prevents the lender from selling to ARC’S without going through the bidding process. “The regulation is intended to bring in more transparency in the process of asset sales to ARC, from its lenders, investors and group entities and ring-fence the transactions from conflict of interest,” said Hari Hara Mishra, Director, UV Asset Reconstruction.
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