1. Overview of RBI Guidelines for ARCs

- The Reserve Bank of India (RBI) issued updated guidelines for Asset Reconstruction Companies (ARCs), effective from 24th April 2024.

- The new guidelines have increased the minimum capital requirement for ARCs.

- The guidelines also outline ARCs' eligibility as resolution applicants and provide directions for allowed investment opportunities.

2. The Revised Capital Requirement

- As per the new guidelines, ARCs now need a minimum capital of Rs 300 crore, significantly up from the previous requirement of Rs 100 crore.

- Existing ARCs have a transition period until 31st March 2026 to fulfill the increased capital requirement.

- In case of any non-compliance, ARCs may face supervisory action until they meet the required capital.

3. Role of ARCs as Resolution Applicants

- ARCs with a minimum net-owned fund of Rs 1000 crore can act as resolution applicants in the asset resolution process under the Insolvency and Bankruptcy Code, 2016.

4. Investment Opportunities for ARCs

- ARCs are permitted to invest in government securities, scheduled commercial bank deposits, or such entities as specified by the RBI from time to time.

- ARCs can also opt for short-term instruments but with a cap of 10% of the net-owned fund on the maximum investment.

5. What are ARCs?

- ARCs are financial institutions that purchase Non-Performing Assets (NPAs) from banks and other financial institutions and help clean up their balance sheets.

- National Asset Reconstruction Company Limited (NARCL) and India Debt Resolution Company Ltd. (IDRCL) are examples of ARCs in India.

6. Recent Changes in ARC Regulations.

- The RBI has made significant changes aiming to strengthen corporate governance, increase transparency, and revise investment requirements.

- Requirements for disclosure of track records, mandatory rating agency engagement, and revision in minimum investment in security receipts have been included.

7. Security Receipts (SRs)

- SRs are issued by ARCs to Qualified Buyers who purchase distressed assets from banks and NBFCs.

- The recent change mandates ARCs to invest at least 15% of the transferors' investment in such receipts or 2.5% of the total receipts issued, whichever is higher.

This thorough understanding of the updated ARC guidelines will be crucial for an aspirant preparing for any government exam related to banking and finance, enhancing their knowledge about ARCs and their role in asset management and reconstruction as outlined by the RBI.