Mumbai, April 6, 2017

Reserve Bank of India has hiked the capital requirement for asset reconstruction companies to Rs 100 crore from Rs 2 crore now.

In a note accompanying the monetary policy statement the central bank said that the enhanced capital requirements were necessary because of the higher amount of cash required to buy bad loans from the current fiscal.

The change in the capital requirements comes after new norms notified by Reserve Bank of India (RBI) in September said if security receipts (SRs) make more than 50% of the value of the asset under consideration, banks have to continue to provide for these loans as if the loans continue in the books of the bank. These norms were aimed at forcing banks to sell more NPAs at cash.

 "In view of the enhanced role of ARCs and greater cash based transactions, it is proposed to stipulate a minimum NOF of Rs 100 crore for ARCs. The necessary instructions will be issued by end-April, 2017," RBI said.

[The Economic Times]