RBI allows ARCs long resolution period beyond eight years

Redemption of receipts in line with resolution time

The Reserve Bank of India (RBI) has given asset reconstruction companies (ARCs) long resolution period (beyond eight years) to ensure smooth working of restructuring package for stressed accounts.

The time for redeeming security receipts (SRs) held against assets might be extended in congruence with the resolution period approved by joint lenders forum and a corporate debt restructuring (CDR), said RBI, in a communique to ARCs.

At present, ARCs get up to eight years for resolution of stressed assets.

However, in most cases, the repayment period goes beyond eight years. In such cases, ARCs holding part of stressed assets, had expressed their inability to go along with other lenders beyond eight years due to regulatory constraints. They insisted on an exit at the end of five or eight years, jeopardising the restructuring efforts of a majority of lenders.

The RBI has kept in mind these constraints while modifying the directions.  Hari Hara Mishra, president and chief operating officer of UV Asset Reconstruction Ltd, said ARCs association had made a representation to regulator for modification.  

Now, with the amendments, ARCs will be able to play an effective role in resolution of stressed cases.

There were some CDR accounts, where ARCs could not play an active role due to regulatory constraints, he added.

Though on the whole, the banking system has remained resilient, asset quality has seen sustained pressure due to continued economic slowdown. The levels of gross non-performing advances (GNPAs) for the system have been elevated.

Stressed Assets Ratio (Gross NPA+ Restructured Standard Advances to Gross Advances) for the system as a whole stood at 10.9 per cent as at the end of March 2015, according to RBI data.