MUMBAI: Asset reconstruction companies (ARCs) have urged the Reserve Bank of India to recognise ARC-sponsored trusts as eligible special purpose entities (SPEs) under the securitisation structure. These trusts are already operationally geared to manage stressed asset pools, they said.
The RBI's draft allows pooling and securitising stressed retail and corporate loans, barring categories like farm loans, education loans, fraud, and wilful defaults. Investors must not be related to borrowers or disqualified under IBC norms.
ARCs have also requested permission to act as investors or co-investors in these securitised asset pools, alongside other eligible investor classes. They have proposed a minimum ARC investment threshold of 2.5% of the total notes issued, to ensure skin in the game.
On the operational front, ARCs have asked the RBI to clarify which entity will be responsible for fulfilling regulatory obligations such as updating credit bureau (CIBIL) records, completing KYC compliance, and issuing "no due" certificates to avoid regulatory lapses.
Lenders currently have three primary options for resolving stressed assets: in-house settlement or restructuring, legal routes such as DRT or IBC, and sale to asset reconstruction companies (ARCs). The RBI's proposed framework introduces a fourth option, which is securitisation of stressed assets, offering a market-based alternative for quicker resolution.
"Given the prolonged delays and uncertainties in legal proceedings, banks may increasingly prefer this route for faster exit and immediate recovery, especially as delays under legal processes lead to higher provisioning burdens year after year," said Hari Hara Mishra CEO ARC Association. "Resolving smaller loan exposures from courts to market mechanisms like securitization could also help decongest the overburdened legal system."
The total debt acquired by ARCs have cumulatively reached Rs 16.14 lakh crore in FY25, which is driven by the one-time transfer of Rs 4.23 lakh crore from the stressed asset stabilisation fund to a single ARC. Excluding this extraordinary item, the incremental acquisition stood at Rs 1.71 lakh crore, nearly flat compared to Rs 1.73 lakh crore recorded in FY24.
The RBI's draft allows pooling and securitising stressed retail and corporate loans, barring categories like farm loans, education loans, fraud, and wilful defaults. Investors must not be related to borrowers or disqualified under IBC norms.
ARCs have also requested permission to act as investors or co-investors in these securitised asset pools, alongside other eligible investor classes. They have proposed a minimum ARC investment threshold of 2.5% of the total notes issued, to ensure skin in the game.
On the operational front, ARCs have asked the RBI to clarify which entity will be responsible for fulfilling regulatory obligations such as updating credit bureau (CIBIL) records, completing KYC compliance, and issuing "no due" certificates to avoid regulatory lapses.
Lenders currently have three primary options for resolving stressed assets: in-house settlement or restructuring, legal routes such as DRT or IBC, and sale to asset reconstruction companies (ARCs). The RBI's proposed framework introduces a fourth option, which is securitisation of stressed assets, offering a market-based alternative for quicker resolution.
"Given the prolonged delays and uncertainties in legal proceedings, banks may increasingly prefer this route for faster exit and immediate recovery, especially as delays under legal processes lead to higher provisioning burdens year after year," said Hari Hara Mishra CEO ARC Association. "Resolving smaller loan exposures from courts to market mechanisms like securitization could also help decongest the overburdened legal system."
The total debt acquired by ARCs have cumulatively reached Rs 16.14 lakh crore in FY25, which is driven by the one-time transfer of Rs 4.23 lakh crore from the stressed asset stabilisation fund to a single ARC. Excluding this extraordinary item, the incremental acquisition stood at Rs 1.71 lakh crore, nearly flat compared to Rs 1.73 lakh crore recorded in FY24.
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