• UGI USER
  • May 19, 2024
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RBI DEPUTY GOVERNORS RAISE SUPERVISORY CONCERNS AT ASSET RECONSTRUCTION FIRMS

Why in the news?

  • RBI raises concerns over alleged unethical practices in asset reconstruction companies (ARCs).
  • ARCs urged to prioritise governance and ethical conduct.
  • Conference organised in Mumbai to address these issues.
source:scribd

About Asset Reconstruction Company (ARC):

  • Specialised financial institution acquiring and managing distressed assets like NPAs.
  • Banks offload troubled loans to ARCs at discounted prices, freeing up capital.
  • ARCs aim to recover maximum value through loan restructuring or asset sales.
  • Proceeds from recovery shared with banks based on profit-sharing agreements.
  • Regulated by central banks or financial authorities to ensure ethical practices and financial system stability.
What are Non-Performing Assets (NPAs) ?

  • Non-Performing Assets (NPAs) are loans or advances overdue for 90 days.
  • NPAs halt income generation for banks, impacting their financial health.
  • RBI mandates banks to disclose NPAs publicly and to RBI periodically.

Classification of asset:

  • Substandard assets: NPAs for up to 12 months.
  • Doubtful assets: Substandard for 12 months.
  • Loss assets: Deemed uncollectible with minimal recovery value.