Context:
Due to the large number of available written-off loans with lenders and the government’s efforts to recover these loans, ARCs are utilizing the chance to purchase these loans.
About Asset Reconstruction Companies (ARCs):
News Source: Livemint
- Definition: It is a Specialized financial institution dealing with Non-Performing Assets (NPAs) in the banking sector.
- Objective: Acquire and manage distressed assets from banks and financial institutions.
- Underlying Act: The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 provides the legal basis of an ARC.
- Capital Needs for ARCs:
- Minimum Net Owned Fund: As per the 2016 amendment to the SARFAESI Act, ARCs should have a minimum Net owned fund of Rs. 2 crores.
- In 2017, the RBI raised the minimum amount for ARCs to Rs. 100 crores.
- Capital Adequacy Ratio (CAR): ARCs are required to maintain a CAR of 15% of their risk-weighted assets.
- Minimum Net Owned Fund: As per the 2016 amendment to the SARFAESI Act, ARCs should have a minimum Net owned fund of Rs. 2 crores.
- NPA Acquisition: ARCs buy NPAs from banks at reduced prices, bringing liquidity and improving the balance sheet of the bank.
- Benefits to Banks: Allows banks to offload NPAs, focus on core banking activities, and reduce the burden of bad loans.
Additional Information:
About National Asset Reconstruction Company Limited (NARCL):
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