RBI Raises Concerns Over Asset Reconstruction Companies’ Functioning

RBI Raises Concerns Over Asset Reconstruction Companies' Functioning/ANI

Dil Bar Irshad | May 29, 2024 | 03:23 PM IST | Breaking News | Follow on Google News

RBI Raises Concerns Over Asset Reconstruction Companies’ Functioning

RBI Raises Concerns Over Asset Reconstruction Companies’ Functioning

The Reserve Bank of India (RBI) has expressed concerns about the functioning of Asset Reconstruction Companies (ARCs), emphasizing that they are not operating according to their mandate to reconstruct and recover assets. Deputy Governor Swaminathan Janakiraman highlighted that ARCs are increasingly becoming warehouses for stressed assets, while original lenders continue to manage collection and custody of borrower securities.

Speaking at a Conference of Asset Reconstruction Companies in Mumbai, Deputy Governor Janakiraman urged ARCs to reassess their operations, particularly when managing assets of stressed companies. He suggested that acting as warehousing agencies for a fee does not align with the intended framework of ARCs.

ARCs are financial institutions that purchase non-performing assets (NPAs) or bad loans from banks and financial institutions, aiming to help banks clean up their balance sheets and improve liquidity in the system. The Finance Minister announced the formation of an ARC structure, including the National Asset Reconstruction Company Limited (NARCL) and India Debt Resolution Company Limited (IDRCL), in the Union Budget 2021.

Deputy Governor Janakiraman also pointed out that data indicates one-time settlements and debt rescheduling are the predominant measures employed by ARCs for asset reconstruction. However, he noted that these measures are not unique to ARCs, as lenders such as banks and financial institutions have the capability to implement similar strategies directly.

NARCL, a government entity, was incorporated on July 7, 2021, with a majority stake held by Public Sector Banks and a balance by Private Banks, with Canara Bank as the Sponsor Bank. Registered with the RBI as an Asset Reconstruction Company, NARCL aims to clean up legacy stressed assets with an exposure of Rs 500 crore and above in the Indian banking system.

(Inputs from ANI)

Dil Bar Irshad

Dil Bar Irshad is a seasoned journalist, hails from Jammu Kashmir's Doda, covers political, social, business stories, index stories.