RBI grants more time to ARCs for realisation of stressed asset

The Reserve Bank of India today allowed asset reconstruction companies (ARCs) to extend the time period to realise stressed assets beyond eight years if a lenders' grouping is taking more than the specified period, subject to some conditions.
"For the purpose of the restructuring proposals approved or to be approved by Board for Industrial and Financial Reconstruction (BIFR) or Corporate Debt Restructuring (CDR) or Joint Lenders' Forum (JLF), SC/RCs shall be permitted to accept a resolution period co-terminus with other secured lenders," RBI said in a notification.
As per the existing norms, SCs or RCs shall formulate the policy for realisation of financial assets under which the period for realisation shall not exceed five years from the date of acquisition of the financial asset concerned.

In all such cases, it said the redemption period of Security Receipts (SRs) held against these assets may be extended to be in congruence with the resolution period approved by BIFR/CDR/JLF, subject to the credit rating agencies continuing to positively rate these SRs, ie as long as the Net Asset Value of the SRs continue to be positive.
This has been done after having considered it necessary in the public interest, and being satisfied that, for the purpose of enabling the RBI to regulate the financial system to the advantage of the country and to prevent the affairs of any SC or RC from being conducted in a manner detrimental to the interest of investors or in any manner prejudicial to the interest of such SC or RC.

The RBI has amended Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to facilitate the debt restructuring beyond 8-year period.

The RBI said, the maximum resolution period permitted to SCs/RCs for realisation of stressed assets acquired by them is 8 years.
"In such cases, SCs/RCs, who are holding a part of the stressed assets, express their inability to go along with the other lenders beyond 8 years due to the regulatory constraints mentioned above and insist on an exit at the end of 5 or 8 years, thereby jeopardizing the restructuring efforts of the majority lenders," it said.

However, certain conditions are attached, like independent credit rating agencies continuing to positively rate security receipts held by asset reconstruction companies or the Net Asset Value of securitisation companies continuing to be positive, the RBI notification said.
It also made certain exclusions but added that the instructions are for "meticulous compliance".