RBI sets up committee to review ARC rules

The Reserve Bank of India (RBI) on Monday constituted a committee to evaluate the role of asset reconstruction companies (ARCs) in stressed debt resolution and review their business model.

The panel has to submit its report within three months after its first meeting.

Headed by former RBI executive director Sudarshan Sen, the six-member panel comprises Vishakha Mulye, executive director, ICICI Bank, P N Prasad, former deputy managing director of State Bank of India, Rohit Prasad, professor of economics, Management Development Institute, Gurugram, Abizer Diwanji, partner, Ernst and Young, and chartered accountant R Anand.

The committee will review the existing legal and regulatory framework and recommend measures to improve the efficacy of ARCs. It will also review their role in stressed asset resolution under the Insolvency and Bankruptcy Code (IBC), and suggest means to improve liquidity and trading of security receipts.

Lenders sell stressed loans to ARCs at a discount, either in exchange of cash or a mix of cash and security receipts. These receipts are redeemable as and when the ARC recovers the specific loan. RBI had announced its intent to review the working of ARCs on April 7, as part of its announcements following the monetary policy committee (MPC) decision.