The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 provides the legal basis for the setting up of ARCs in India.
Minimum Net Owned Funds of ARCs:
As per amendment made in the SARFAESI Act in 2016, an ARC should have a minimum net owned fund of Rs. 2 crore.
The RBI raised this amount to Rs. 100 crore in 2017. The ARCs also have to maintain a capital adequacy ratio of 15% of its risk weighted assets.
Objectives of ARCs:
⏺ It is a specialized financial institution that buys the Non Performing Assets (NPAs) from banks and financial institutions so that they can clean up their balance sheets.
⏺ This helps banks to concentrate in normal banking activities. Banks rather than going after the defaulters by wasting their time and effort, can sell the bad assets to the ARCs at a mutually agreed value.
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