- The Reserve Bank of India(RBI) has allowed asset reconstruction companies (ARCs) to acquire financial assets from other ARCs in a bid to accelerate timely resolution of stressed assets.
- Earlier,ARCs could acquire financial assets from other ARCs only when they had some exposure to the asset that was being bought.
- However,the transfer of assets by one ARC to another would depend on certain conditions.For example,the transaction has to be settled on cash basis between the ARCs.
- The selling ARC will utilise the proceeds so received for the redemption of underlying security receipts.Further,the price discovery for such transaction shall not be prejudicial to the interest of Security Receipt holders
- An Asset Reconstruction Company is a specialized financial institution that buys the Non performing assets(NPAs) or bad assets from banks and financial institutions so that the latter can clean up their balance sheet.
- The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 enacted in December 2002 provides the legal basis for the setting up ARCs in India.
- Section 2(1) of the Act explains the meaning of Asset Securitization. Similarly,ARCs are also elaborated under Section 3 of the Act.
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