RBI tightens Norms for ARCs

Current context: The Reserve Bank of India (RBI) has to tighten norms for asset reconstruction companies (ARCs) to acquire financial assets.

• RBI has put restriction on the ARCs from buying financial assets from its sponsor firms and lenders (bank or financial institution) on a bilateral basis.
• Asset Reconstruction Company (India) (Arcil), which is sponsored by State Bank of India (SBI), ICICI Bank, Punjab National Bank (PNB) and IDBI Bank is likely to be affected the most.
• RBI has also restricted ARCs to buy financial assets from a bank or financial institution, which is:

1. A lender to the ARC
2. A subscriber to the fund raised by the ARC for its operations
3. An entity in the group to which the ARC belongs

• However, the ARCs are allowed to participate in auctions of such assets provided-

1. Such auctions are conducted in a transparent manner
2. On arm’s length basis
3. The prices are determined by market forces

• As per the amendment made in the Sarfaesi Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act), RBI had permitted ARCs in June to acquire financial assets from other ARCs on meeting certain conditions that includes:

1. The transaction has to be settled on cash basis between two ARCs.
2. The selling ARC will utilise the proceeds for redemption of underlying security receipts.
3. The date of redemption of security receipts would not extend beyond eight years from the date of acquisition by the first ARC.

Question: 

Q.1 In the context of RBI norms for asset reconstruction companies (ARCs) to acquire financial assets, choose the correct statement?

1. RBI has put restriction on the ARCs from buying financial assets from their sponsor firms and lenders (bank or financial institution) on a bilateral basis.
2. As per the amendment made in the Sarfaesi Act, 2002 RBI had permitted ARCs to acquire financial assets from other ARCs.

a. Only 1
b. Only 2
c. Both 1 and 2
d. None of the above