Reserve Bank of India tightens norms for ARCs on income recognising fee

As a step to curb asset reconstruction companies (ARCs) from breaching income recognition norms, the Reserve Bank of India (RBI) on Monday said ARCs will deduct amounts from net-owned funds while calculating the Capital Adequacy Ratio. 

They will have to deduct these amounts from the amount available for payment of dividend as well. 

After implementing Indian Accounting standards, some ARCs have been recognising management fees even though the said fee had not been realised for more than 180 days, it said.

ARCs preparing financial statements as per Ind AS, will have to deduct Management fee recognised during the planning period that remains unrealised beyond 180 days from the date of expiry of the planning period, it added.

The Audit Committee of the Board (ACB) shall review the extent of unrealised management fee and satisfy itself on the recoverability of the same while finalising the financial statements. ARCs have to ensure that the management fee is computed strictly in accordance with extant regulations.

They will have to reduce unrealised management fees where the net asset value of the Security Receipts has fallen below 50 per cent of the face value.