RBI Enables Asset Reconstruction Firms To Acquire Financial Assets From Their Peers For Cash


The Reserve Bank of India (RBI) on Friday allowed Asset Reconstruction Companies (ARCs) to buy financial assets from peers on the condition that the transaction is done in cash.

The notification, following an amendment to the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, however, orders that the discovery of the prices for the aforementioned transaction should not be “prejudicial to the interests of the holders of receipts of titles ”.

Among other conditions to be ensured during an ARC to ARC transaction, the seller should ensure that the proceeds received from the transaction go to the reimbursement of the underlying securities receipts.

But more importantly, the date of repayment of the underlying securities receipts and the total period of realization will not extend beyond eight years from the date of acquisition of the financial asset by the first ARC. , said the regulator.

In accordance with regulations published in 2014, a reconstruction company purchases a stressed asset from a lender under the 15:85 structure, where 15% of the net asset value is prepaid while SR are issued for the balance.

These SRs can then be repaid over five to eight years, depending on the rate at which the bad debt is resolved.
Prior to the central bank circular of July 2014, structure 5:95 required the upfront payment of only 5% of the net asset value.

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