Guidelines are issued in exercise of the powers conferred by Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

• SARFAESI Act addresses problems of Non-Performing Assets & bad loans by empowering  banks and financial institutions to recover default loans by auctioning collateral properties without court intervention.

Key highlights of the guidelines

• Framing a Board-approved policy by every ARC: For settlement of dues payable by borrowers covering aspects such as eligibility criteria for one-time settlements etc.
• Settlement of accounts with outstanding dues exceeding Rs 1 Crore: Can only proceed after a thorough evaluation by an Independent Advisory Committee (IAC) composed of financial, legal expertise etc.
  • Also, Board of Directors, including at least two independent directors, must deliberate on IAC’s recommendations and evaluate alternative recovery options.
• For settlement of accounts with dues Rs 1 Crore or below: To quicken resolution process, such cases can now be cleared by a competent authority established under a board-approved policy
  • Officials involved in acquiring the financial asset cannot participate in the approval of settlement to prevent conflicts of interest.

What are ARCs?

• Definition: Financial institution that buys the Non-Performing Assets (NPAs) or bad assets from banks and financial institutions so that the latter can clean up their balance sheets.
• Registration: Registered as a company by RBI under the SARFAESI Act, 2002.