RBI raises the ARC minimum net owned fund to Rs 300 cr

The asset reconstruction companies (ARCs) received a master directive from the Reserve Bank of India (RBI) on Wednesday, raising the minimum net owned fund (NOF) from the current Rs 100 crore to Rs 300 crore.

For a mutually acceptable sum and an advance payment of 15%, an ARC purchases non-performing loans or bad assets from banks and financial institutions. Later, the money is recovered from the borrower, helping the banks to clean up their balance sheets.

According to the RBI, the increased NOF requirement of Rs 300 crore, which would increase gradually, is necessary to safeguard investors’ interests and maintain the prudent and effective operation of ARCs, which now number more than two dozen.

According to the new directive, an ARC must have a NOF of Rs 300 crore in order to start asset reconstruction or securitization operations and maintain that level of funding going forward. An ARC must apply for registration and get a certificate of registration from the RBI before to starting the asset reconstruction or securitization activity. According to the guidelines, an ARC is not allowed to invest in real estate or buildings, with the exception of 10% of its own money that may be used for internal purposes.