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Asset reconstruction companies ask RBI to address regulatory gaps between IBC and Sarfaesi Act


MUMBAI: Asset reconstruction companies (ARCs) have asked the Reserve Bank of India to address “regulatory gaps” between the insolvency law and the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (Sarfaesi Act) to enable them to bid for bankrupt companies.

This comes after the RBI rejected UV Asset Reconstruction Company’s resolution proposal for bankrupt Aircel on the grounds that ARCs cannot infuse equity in an insolvent company at the resolution stage, people close to the central bank told ET.

The Sarfaesi Act allows banks and other financial institutions to directly auction residential or commercial property pledged with them to recover loans. If a non-ARC had invested in equity and partnered with UVARCL to pick up the assets, then RBI would not have rejected the plan, people said. UVARCL may now have to rework its resolution plan.

Stung by the RBI’s decision on UVARCL, the Association of ARCs in India has called on the central bank to issue new guidelines for ARCs with provisions similar to those under the Insolvency and Bankruptcy Code.

In a letter to RBI Governor Shaktikanta Das, the association said the banking regulator’s refusal to accept an ARC as a resolution applicant (RA) would stall insolvency processes where they are bidders or have won bids. It said ARCs arrange funds to help distressed assets and play a huge role in reviving them.


“We understand from some of our members that as per the extant guidelines and directions issued by RBI to ARCs, submission of resolution plans by ARCs as RA is not in conformity with the provisions of securitization act, 2002, and the directions/guidelines issued thereunder,” the ARC association said in its letter dated August 18.

Such an interpretation more than two years after the ministry of law and justice’s notification mentioning ARCs specifically as eligible applicants will abruptly stall ongoing resolution plans/implementation of resolution plans carried out under IBC and is likely to create avoidable disruption, the association said.

RBI did not respond to an emailed query.

The banking regulator’s rejection of UVARCL’s plan was first published in Wednesday’s edition of ET.


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