The Reserve Bank of India has clarified that smaller asset reconstruction companies can participate as resolution applicants in insolvency bids without meeting the Rs 1,000-crore net owned fund threshold, opening new opportunities for mid-sized players in distressed assets recovery.
The Reserve Bank of India has removed a key hurdle for smaller asset reconstruction companies to take part in insolvency cases as co-resolution applicants, clarifying that they can help bid for distressed financial assets without meeting the Rs 1,000-crore net owned fund threshold that otherwise applies to certain ARC insolvency bids. The clarification, issued at the weekend, gives smaller players a route into cases under the Insolvency and Bankruptcy Code while a strategic investor supplies the capital, management and operational experience needed to keep the business running. According to the clarification, the lower-capital firms may do so when their role remains within the scope of the SARFAESI Act.
The move settles uncertainty over whether ARCs could appear alongside strategic buyers in bankruptcy proceedings. Hari Hara Mishra, chief executive of the Association of ARCs in India, said the clarification gives “complete clarity” on the role and limits of ARCs as resolution applicants and would benefit stakeholders across the insolvency process. Industry groups have long argued that ARCs are well placed to work on stressed loans because they specialise in buying and restructuring bad debt.
The backdrop to the decision goes back several years. In 2020, the Reserve Bank of India had voiced doubts about whether ARCs should act as resolution applicants at all, raising concerns about their ability to manage resolution plans effectively. That position shifted in 2021, when an RBI committee recommended allowing them to participate, citing their experience with stressed assets and the possibility of stronger recoveries. Revised rules issued in 2022 formally opened the door, but only for firms with at least Rs 1,000 crore in net owned funds, alongside safeguards that limited control over a corporate debtor.
That threshold has been a binding constraint for much of the industry. Of the 27 ARCs in the market, only five were above the Rs 1,000-crore level, leaving smaller firms unsure whether they could join insolvency bids. The latest clarification removes that ambiguity for cases where the ARC is effectively participating as a debt-acquisition vehicle rather than taking on broader roles that would still trigger the higher capital requirement. It also comes as ARCs have been pressing for a larger role in the broader restructuring ecosystem, including the Reserve Bank’s securitisation framework.
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