The Reserve Bank of India (RBI) issued a prepared master instruction on Wednesday, increasing the minimum capital requirement for asset reconstruction companies (ARCs) to undertake securitization to Rs 300 crore from Rs 100 crore as of October 11, 2022.
The central bank announced that the regulation would take effect on April 24, 2024. As of October 11, 2022, ARCs have been given a glide route to meet the minimum needed Net Owned Fund (NOF) of Rs 300 crore.
ARCs shall have Rs 200 crore on March 31, 2024, and Rs 300 crore by March 31, 2026.
"In case of non-compliance at any of the above stages, the non-complying ARC shall be subject to supervisory action, including prohibition on undertaking incremental business till it reaches the required minimum NOF applicable at that time," the Reserve Bank of India said.
ARCs with a minimum NOF of Rs 1,000 crore may act as resolution applicants.
ARCs may use funds to restructure acquired loan accounts with the sole purpose of realizing dues in government securities and deposits with scheduled commercial banks, Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD), or any other entity specified by the RBI.
ARCs can also invest in short-term products such as money market mutual funds, certificates of deposit, and corporate bonds/commercial papers rated AA or higher by an approved credit rating agency (CRA). Such investments will be subject to a 10% cap on the ARC's NOF for maximum investment in such short-term instruments.
