The Indian Banks’ Association (IBA) has constituted a five-member working group for implementing the recommendations of the Reserve Bank of India’s committee on the “working of the Asset Reconstruction Companies (ARCs)”.

The Group comprises Ajit Kumar, MD and CEO, Secondary Loan Market Association (SLMA); Hari Hara Mishra, CEO, Association of ARCs in India; Mythili Balasubramanian, Executive Director, Edelweiss ARC; and senior officials from State Bank of India (Dharmendra Pali) and ICICI Bank (Anupama Ranade).

The Group has been constituted at the behest of the RBI. The central bank wants IBA and SLMA to take appropriate measures for early implementation of the committee’s recommendations in consultation with the lenders and ARCs.

In light of the committee’s recommendations aimed at enablingARCs to fulfill the increasing demand of the financial sector, the working group will undertake a thorough review of assignment agreements and trust deed templates.

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This review will focus on the acquisition of stressed assets by ARCs from lenders, and it will incorporate necessary updates to align with the evolving changes and expectations within the ARC sector.

The Secondary Loan Market Association (SLMA) will be engaged for standardisation of documents.

Online platform

IBA is expected to provide a model process document to lenders for ensuring certainty and transparency in auctions conducted by them.

Also, for the purpose of ensuring transparency and uniformity of processes in the sale of stressed assets, a separate online platform may be established. Infrastructure created by SLMA may be utilised for this purpose. SLMA is expected to provide lenders with a comprehensive checklist of necessary information to be given to ARCs at the pre-deal stage for due diligence and deal evaluation.

RBI had set up a committee to undertake a comprehensive review of the working of ARCs under the chairmanship of Sudarshan Sen, former ED, RBI, on April 28, 2021. The report of the committee was released on November 2, 2021.

The ARC framework is designed to allow originators to focus on their core function of lending by removing sticky, stressed financial assets from their books. ARCs act as the primary agent for recovery upon acquisition of such financial assets, per the committee.

The ARC framework is also designed to help borrowers revive their businesses, which protects the viable and productive assets of the economy and often ensures a better return to banks and financial institutions (FIs) from their stressed assets.

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