Beforehand, this perform was solely managed by asset reconstruction corporations (ARCs). This initiative, launched alongside the April financial coverage, goals to broaden the marketplace for distressed debt and reduce reliance on ARCs.
A notable side of this new framework is the introduction of decision managers, who shall be liable for recovering worth from the underlying property. These managers should be impartial of the originating lender. RBI-regulated entities are permitted to function decision managers for such loans, whereas insolvency professionals and controlled establishments can also qualify for different instances.
Lenders are required to incrementally provision for the securitized notes over a span of 5 years, with capital necessities various based mostly on restoration rankings—favoring senior tranches. Any remaining publicity after the five-year interval is to be marked right down to Re 1.
With this new setup, ARCs could face a discount of their market share, as bigger instances at present funnel into the Nationwide Asset Reconstruction Firm Restricted (NARCL). The revised framework permits lenders to avoid ARCs for mid-sized and retail loans.
Moreover, RBI has mandated that ARCs enhance their web owned funds to Rs 300 crore by FY26, a benchmark that many have but to fulfill.(With TOI inputs)