IBA sets up 5-member group to implement RBI committee’s recommendations on ARCs
The Indian Banking Association (IBA) has set up a five-member working group to implement the recommendations of the RBI Committee on the ‘Action of Asset Reconstructors (ARCs)’.
The group comprises of Ajit Kumar, Managing Director and CEO of Subordinated Loan Market Association (SLMA); Hari Hara Mishra, CEO, ARCs Association of India; Mithili Balasubramanian, Executive Director, Edelweiss ARC; and senior officials from State Bank of India (Dharmendra Pali) and ICICI Bank (Anupama Ranade).
The group was formed at the behest of the Reserve Bank of India. The central bank wants the IBA and SLMA to take appropriate measures for early implementation of the committee’s recommendations in consultation with lenders and ARCs.
In light of the committee’s recommendations aimed at enabling agricultural research centers to meet the growing demand of the financial sector, the working group will conduct a comprehensive review of the allocation agreements and trust instruments models.
This review will focus on the acquisition of stressed assets by ARC from lenders, and will include necessary updates to align with evolving changes and expectations within the ARC sector.
The Subordinated Loan Market Association (SLMA) will be appointed to standardize the documents.
online platform
The IBA is expected to provide a model process document for lenders to ensure certainty and transparency in the auctions it conducts.
Also, for the purpose of ensuring transparency and standardization of operations in the sale of stressed assets, a separate online platform can be created. The infrastructure created by SLMA can be used for this. The SLMA is expected to provide lenders with a comprehensive checklist of necessary information that must be provided to ARCs at the pre-transaction due diligence and transaction evaluation stage.
The RBI formed a committee to conduct a comprehensive review of the work of ARCs under the chairmanship of Sudarshan Sen, former Executive Director, RBI, on 28 April 2021. The report of the committee was released on 2 November 2021.
The ARC framework is designed to allow originators to focus on their core function of lending by removing sticky, cumbersome financial assets from their books. ARCs act as the primary recovery agent upon acquisition of these financial assets, according to the commission.
The ARC framework is also designed to help borrowers revive their businesses, protecting viable and economically productive assets, and often ensuring a better return for banks and financial institutions (FIs) from their stressed assets.