MUMBAI: The Reserve Bank of India (RBI) on Wednesday issued a master direction to the asset reconstruction companies (ARCs) increasing the minimum net owned fund (NOF) to Rs 300 crore from the Rs 100 crore now.
An ARC buys non-performing loans or bad assets from banks and financial institutions for a mutually agreeable amount at an upfront payment of 15% and later recover the money from the borrower, thus cleaning up their balance sheets.
The RBI said the higher NOF requirement of Rs 300 crore, which will go up on an ongoing basis, is to ensure prudent and efficient functioning of ARCs, which number more than two dozens now, and to protect the interest of investors.
As per the new direction, “to commence business of securitisation or asset reconstruction, an ARC is required to have NOF of Rs 300 crore and thereafter, on an ongoing basis. Before commencing the business of securitisation or asset reconstruction, an ARC shall apply for registration and obtain a certificate of registration from the RBI.” The directions also state that no ARC shall invest in land or building, except for investment for its own use up to 10 % of its owned funds.