Asset Reconstruction Companies are barred from Acquisition of financial assets from sponsors and lenders

On Friday (December 6), RBI announced that Asset Reconstruction Companies (ARCs) shall not acquire financial assets, from the following on a bilateral basis, whatever may be the consideration.

The above restriction is applicable to the following types of ARCs where;

• a bank/ financial institution which is the sponsor of the ARC;
• a bank/ financial institution which is either a lender to the ARC or a subscriber to the   fund, if any, raised by the ARC for its operations;
• an entity in the group to which the ARC belongs.

The communication of Central Bank, however clarifies that “they (ARCs) may participate in auctions of the financial assets provided such auctions are conducted in a transparent manner, on arm’s length basis and the prices are determined by market forces”