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Posted 25 Apr 2024

1 min read

  • These have been issued in exercise of the powers conferred by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
  • Aim of the direction: To ensure prudent and efficient functioning of ARCs and to protect the interest of investors.
  • ARCs are financial institutions that buy the Non Performing Assets (NPA) or bad assets from banks and financial institutions to clear their balance sheets.
    • Union Budget 2021-22, announced the setting up of ARCs.
    • They are registered by RBI under SARFAESI Act, 2002.

 

  • The RBI’s direction to ARCs:
    • Have to maintain capital adequacy ratio of a minimum of 15% of its total risk-weighted assets.
      • Prohibited from raising money by way of deposit.
    • No ARC shall invest in land or building, except for investment for its own use up to 10% of its owned funds.

 

  • Significance of ARCs:
    • Incentivize quicker action on resolving stressed assets thereby helping in better value realization.
    • Help in bringing liquidity into the economy. 
    • Improves bank's valuation and enhances their ability to raise market capital.
  • Tags :
  • RBI
  • ARCs
  • NPAs
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