RBI toughens standards for CRAs to acquire financial assets

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New Delhi: The Reserve Bank of India (RBI) on Friday tightened standards for asset reconstruction companies (ARCs), preventing them from buying financial assets from their corporate sponsors and lenders on a bilateral basis. However, the regulator has allowed CRAs to participate in the auctions of these assets.

“They (ARCs) can participate in auctions of financial assets as long as those auctions are conducted in a transparent manner, at arm’s length and that prices are determined by market forces,” RBI said.

Under the new rules, ARCs cannot acquire financial assets from a bank or financial institution, which is the sponsor of ARC, on a bilateral basis. The RBI has also prevented ARCs from purchasing financial assets from a bank or financial institution, which is either an ARC lender or an underwriter of the fund raised by the ARC for its operations and a group entity. to which the CRA belongs.

In June, the Reserve Bank authorized ARCs to acquire financial assets from each other, subject to certain conditions being met, in light of the amendments made to the Sarfaesi Law of 2002.

“In view of the amendment to the 2002 Law on Securitization and Reconstruction of Financial Assets and the Execution of Interest on Securities (Sarfaesi), it was decided to allow CRAs to acquire financial assets from other CRAs, “RBI said in a notification.

However, the transfer of assets from one ARC to another would depend on certain conditions such as the transaction must be settled in cash between two ARCs. The selling CRA will use the proceeds to redeem the underlying securities receipts, RBI had said.

The date of repayment of the receipts of the underlying securities 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, he added. .

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