RBI mandates Minimum Capital Requirement for ARCs upto Rs 300 Crore

An Asset Reconstruction Company (ARC) is a financial institution that buys Non-Performing Assets (NPA) or bad assets from banks and financial institutions so that the latter can clean up their balance sheets.

RBI mandates Minimum Capital Requirement for ARCs upto Rs 300 Crore

New Delhi: The Reserve Bank of India (RBI) has recently through its guidelines, increased the minimum capital requirement for Asset Reconstruction Companies (ARCs), commencing business to Rs 300 crore from Rs 100 crore.  The circular is passed to ensure proficient and efficient functioning of ARCs and to protect the interest of investors,

As per the new directives, ARCs, as of October 11, 2022, have been granted a transition period to achieve the revised minimum Net Owned Fund (NOF) requirement. They are expected to maintain a NOF of Rs 200 crore by March 31, 2024, and reach the Rs 300 crore mark by March 31, 2026.

Further, ARCs with a minimum NOF of Rs 1,000 crore can act as resolution applicants.

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According to the guidelines, it will allow ARC to deploy any surplus funds available with it in short-term instruments like money market mutual funds, certificates of deposit and corporate bonds or commercial papers which have a short-term rating equivalent to the long-term rating of AA- or above by an eligible credit rating agency (CRA), subject to a cap of 10 per cent of the net owned funds of the NOF of the ARC on maximum investment in such short-term instruments.

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An Asset Reconstruction Company (ARC) is a financial institution that buys Non-Performing Assets (NPA) or bad assets from banks and financial institutions so that the latter can clean up their balance sheets.

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