Login With Google
Panel to mull ARC for stressed assets
Why in the news ?
- The Union Finance Ministry said a panel headed by Punjab National Bank (PNB) Chairman Sunil Mehta would examine whether banks need to form an asset reconstruction company (ARC) or asset management company (AMC) for faster resolution of stressed assets.
- The government will also appoint CEOs for headless public sector banks (PSBs) in the next 30 days
More on news
- Gross non-performing assets of banks have already hit the Rs 10,00,000 crore mark for the year ended March 2018 with public sector banks accounting for Rs 8,90,000 crore NPAs and private banks the rest.
- Losses of PSU banks for the quarter were over Rs 62,000 crore.
- The committee will come out with its recommendations about the ARC/ AMC over the next two weeks.
- This group will consider whether such an arrangement will be good for the banking system and if any such suggestion is advisable, they will also consider the modalities by which such an ARC and/or and AMC should be set up.
- NIIF could be a possibility that this committee may consider on a funding issue of the proposed ARC.
What is ARC ?
- An Asset Reconstruction Company is a specialized financial institution that buys the NPAs or bad assets from banks and financial institutions so that the latter can clean up their balance sheets.
- ARCs are in the business of buying bad loans from banks.
- ARCs clean up the balance sheets of banks when the latter sells these to the ARCs. 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.
- The SARFAESI Act, enacted in December 2002 provides the legal basis for the setting up ARCs in India.
- As per amendment made on the SARFAESI Act in 2016, an ARC should have a minimum net owned fund of Rs 2 crore. The RBI plans to raise this amount to Rs 100 crore by end March 2019.
Source
- The Hindu
- Indian Express
- Indian Economy.