Sudarshan Sen Committee of RBI

The Reserve Bank of India recently set up a committee to study about the Asset Reconstruction Companies (ARC) in the country. The committee will evaluate the role of ARCs in debt resolution and will review their business model.

About the Committee

• The Committee is headed by former RBI Executive director Sudarshan Sen.
• It will review the legal and regulatory framework of ARCs.
• It will recommend measures to improve the efficacy of Asset Reconstruction Companies.
• The Committee will also review the role of ARC in stressed asset resolution under the IBC (Insolvency and Bankruptcy Code).

Need for the Committee

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act was enacted in 2002. The regulatory guidelines for Asset Reconstruction Companies (ARC) were issued under the SARFAESI Act in 2003. Since then the ARCs have grown in size and numbers. However, their potential to resolve stressed assets is yet to be realised completely.

Background

The Reserve Bank of India had announced under its Monetary Policy Committee decisions that it will review the working of ARCs in the country.

What is the issue?

The Asset Reconstruction Companies have been coming forward in the resolution processes under Insolvency and Bankruptcy Code. In reality, this will affect the Public Sector Banks such as SBI. For instance, UV ARC Limited came forward with a resolution plan for Aircel. However, RBI had rejected the plan citing that the plan did not abide by SARFAESI Act. RBI had rejected several such proposals made by ARCs. This has created controversies. Thus, RBI has formed the committee to study about the Asset Reconstruction Companies and their potential role in debt resolution processes.

Month: Current Affairs - April, 2021