RBI To Tighten ARC Rules; Revises Prompt Corrective Action Framework For Banks
The Reserve Bank of India (RBI) on Thursday said that it would revise some of the rules for asset reconstruction companies in light of their increased importance in the system.
“It is proposed to stipulate a minimum NOF (net owned funds) of Rs 100 crore for ARCs. The necessary instructions will be issued by end-April, 2017,” said the RBI.
The change in norms comes against the backdrop of a number of applications received by the RBI. There are more than a dozen applications pending, a person familiar with the matter recently told BloombergQuint.
Separately, the central bank also made some changes to the prompt corrective action (PCA) framework that kicks in when banks breach certain regulatory requirements. Given the surge in bad loans and provisions, a few smaller public sector banks may have breached these provisions.
“Based on the recommendations of the Sub-Committee of Financial Stability and Development Council (FSDC-SC), the existing PCA framework for banks has been reviewed, updated and finalised with the approval of the Board for Financial Supervision (BFS),” said the RBI.
Also Read: RBI Keeps Repo Rate Unchanged, Hikes Reverse Repo Rate By 25 Basis Points
This comes against the backdrop of a surge in reported bad loans in the banking sector over the past 18 months. An asset quality review (AQR) conducted by the RBI in mid-2015 had pushed banks to recognise visibly stressed assets and provide for them. This led to a near doubling of gross non-performing assets (NPAs) in the banking sector from Rs 3.4 lakh crore at the end of September 2015 to Rs 7 lakh crore at the end of the December 2016 quarter, shows data collected by BloombergQuint.
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