RBI increases the minimum capital needed for ARCs to start securitizing to Rs 300 crore
The Reserve Bank of India (RBI) made a big announcement on Wednesday when it published a combined master directive for asset reconstruction companies (ARCs). As of October 11, 2022, the minimum capital required to start securitization was increased to Rs 300 crore from Rs 100 crore.
According to the RBI, the rule will take effect on April 24, 2024. As of October 11, 2022, ARCs have been given a glide route to reach the Rs 300 crore minimum Net Owned Fund (NOF) requirement.
The authority granted by Sections 3, 9, 10, 12, and 12A of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) has been used to issue these directives.
By March 31, 2024, ARCs must have Rs 200 crore, and by March 31, 2026, they must have Rs 300 crore.
The RBI said that if an ARC fails to comply at any of the aforementioned phases, it would face supervisory measures, such as being prohibited from taking on new business until it meets the minimum NOF that is relevant at that point.
ARCs are eligible to apply for resolutions if their NOF is at least Rs 1,000 crore.
With the sole intent of realizing obligations in government securities and deposits with scheduled commercial banks, Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD), or any other organization that the RBI may designate, ARCs may use funds to undertake restructuring of acquired loan accounts.
Additionally, they have the option to invest in short-term securities such as money market mutual funds, certificates of deposit, corporate bonds, and commercial papers that have been assigned a short-term rating by an appropriate credit rating agency (CRA) that is equal to or higher than the long-term rating of AA.
