The Reserve Bank of India (RBI) has raised the capital requirement for asset reconstruction companies (ARCs) to Rs 100 crore, from the current Rs 2 crore, it has announced.
This move was necessitated by the higher amount of cash required to buy bad loans from the current fiscal, RBI said in note accompanying its first bi-monthly monetary policy statement of the current fiscal presented here on Thursday.
The enhancement in capital requirements comes after new norms notified by the RBI in September last said if security receipts (SRs) make more than 50 per cent of the value of the asset under consideration, banks have to continue to provide for these loans as if the loans continue in the books of the bank.
These norms were aimed at forcing banks to sell more such non-performing assets (NPAs), or bad loans, at cash.
"In view of the enhanced role of ARCs and greater cash-based transactions, it is proposed to stipulate a minimum NOF (Net Owned Fund) of Rs 100 crore for ARCs. The necessary instructions will be issued by end-April, 2017," the RBI said.