RBI, SEBI Consider Allowing Mutual Funds To Sell Debt To ARCs

A RBI committee, formed to look into the functioning of ARCs, headed by Sudarshan Sen, in 2021 recommended that funds should be able to sell their debts to ARCs

Currently, ARCs are not allowed to acquire debt from mutual funds.

Source : Getty

The Reserve Bank of India (RBI) is holding discussions with the Securities and Exchange Board of India (SEBI) on letting mutual funds sell their debt to asset restructuring companies (ARCs). 

The development has been informed by the RBI to the debt restructuring firms, reported Business Standard. Last week, the deputy governors of the central bank, executive directors, and other officials met the heads of the ARCs to discuss the issue. 

Currently, ARCs are not allowed to acquire debt from mutual funds. Notably, a RBI committee earlier recommended that funds should be able to sell their debts to ARCs.

The committee, headed by Sudarshan Sen, shared its report earlier in November 2021 and said, “Today, AIFs (alternative investment funds), mutual funds, FPIs (foreign portfolio investors), etc, are actively providing funds to non-financial firms through subscription to debt securities. Retail investors are also investing in debt securities, including unsecured debt. It would, therefore, be useful to broad base the entities from which ARCs can purchase financial assets,”

Notably, the committee was formed to look into the functioning of ARCs and provide a detailed review of the same. 

It also recommended the banking regulator allow ARCs to purchase financial assets from all regulated entities, such as AIFs, AMCs, etc. to help boost debt aggregation, which is crucial for successful resolution of stressed assets. 

“The Reserve Bank may consider permitting ARCs to acquire financial assets from all regulated entities, including AIFs, FPIs, AMCs (asset management companies) making investment on behalf of MFs and all NBFCs (including housing finance companies) irrespective of asset size and from retail investors,” it suggested.

 

Official data from the RBI revealed that banks’ selling to ARCs increased in 2022-23 , wherein, commercial banks sold 9.7 per cent of the previous year’s gross NPA stock to ARCs, against 3.2 per cent sold in 2021-22.