Mumbai: Nearly a third of the 27 asset reconstruction companies must raise capital by March 2024 to comply with the Reserve Bank of India’s requirement of a minimum capital of Rs 200 crore.
In October 2022, the RBI set new guidelines requiring ARCs to raise capital to Rs 200 crore by March 2024 and Rs 300 crore by March 2026, replacing the earlier minimum capital requirement of Rs 100 crore for licensing.
Ten ARCs need capital for the Rs 200 crore requirement by March 2024, and 18 must meet the Rs 300 crore stipulation by March 2026. Additionally, the RBI mandates Rs 1000 crore for ARCs aiming to become resolution applicants in insolvency cases.
Concerns have arisen that increased capital requirements may deter new entrants focusing on small businesses. Industry insiders argue that large corporate defaults are cyclical, with most already addressed; the next wave is anticipated from micro, medium, and small enterprises, requiring lower resolution capital.
“The ARC Association has requested the RBI in October 2022 to lower the minimum capital requirement to Rs 200 crore (from Rs 300 crore), aligning with the recommendation of RBI’s Committee on ARCs,” said Hari Hara Mishra, CEO, Association of Asset Reconstruction Companies.
The Association has represented that ARCs can handle increased business due to lowered minimum investment of 2.5% in case the seller does not invest in SRs issued. The Association has suggested the networth requirement to achieve Rs 150 crore by March 2025 and Rs 200 crore by March 2027. NARCL, which is among the five ARCs meeting the Rs 1000 crore net worth criteria, successfully bid for SREI finance companies in insolvency.
