Acquisition of financial assets by asset reconstruction companies from sponsors and lenders – Finance and Banking

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India: Acquisition of financial assets by asset reconstruction companies from sponsors and lenders

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The RBI, in application of its circular n. RBI / 2019-20 / 110 DOR.NBFC (ARC) CC. N ° 8 / 26.03.001 / 2019-20 of December 6, 2019 directed the asset reconstruction companies (“BOW“) not to acquire financial assets on a bilateral basis from:

  1. a bank / financial institution that is an ARC sponsor;
  2. a bank / financial institution that is either an ARC lender or an underwriter of the fund, if any, raised by the ARC for its operations; and
  3. an entity of the group to which ARC belongs.

The RBI has allowed CRAs to participate in financial asset auctions on the condition that such auctions are conducted in a transparent manner, at arm’s length, and that prices are determined by market forces.

DSK Legal observations: The circular aims to continue to encourage asset reconstruction companies to purchase financial assets while ensuring that this is done in a transparent and fair manner. The circular prohibits CRAs from purchasing assets from lenders on a bilateral basis (related entities, investor entities, group entities) to avoid any potential conflict, unless such transactions are carried out through a fair and transparent auction.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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