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Consider the following statements with reference to the Asset Reconstruction Companies (ARCs):
1. They are specialized financial institutions that purchase bad debts of a bank and recover those debts by itself.
2. They are registered under the Reserve Bank of India (RBI) and regulated under the SARFAESI Act, 2002.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
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Verified Answer
Consider the following statements with reference to the Asset Reconstr...
The Reserve Bank of India (RBI) recently released a master direction for asset reconstruction companies (ARCs).
About Asset Reconstruction Companies (ARCs):
- An ARC is a specialized financial institution that purchases the bad debts of a bank at a mutually agreed value and attempts to recover those debts or associated securities by itself.
- ARCs are registered under the Reserve Bank of India (RBI) and regulated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act, 2002).
- They function under the supervision and control of the RBI.
- As per the RBI, ARC performs the functions namely Acquisition of financial assets, Change or takeover of Management or Sale or Lease of Business of the Borrower, Rescheduling of Debts, Enforcement of Security Interest and Settlement of dues payable by the borrower.
- ARCs take over a portion of the bank's debts, which qualify as Non-Performing Assets (NPAs). Therefore, ARCs are involved in the business of asset reconstruction, securitisation, or both.
- All the rights previously held by the lender (the bank) in regard to the debt are transferred to the ARC.
- The required funds to purchase such debts can be raised from Qualified Buyers.
- Qualified Buyers include Financial Institutions, Insurance companies, Banks, State Financial Corporations, State Industrial Development Corporations, trustee or ARCs registered under SARFAESI and Asset Management Companies registered under SEBI that invest on behalf of mutual funds, pension funds, FIIs, etc.
- The Qualified Buyers are the only persons from whom the ARC can raise funds.
Hence both statements are correct.
Most Upvoted Answer
Consider the following statements with reference to the Asset Reconstr...
Introduction to Asset Reconstruction Companies (ARCs)
Asset Reconstruction Companies (ARCs) play a crucial role in the financial ecosystem, particularly in managing non-performing assets (NPAs) for banks and financial institutions.
Statement 1: Purchase of Bad Debts
- ARCs are specialized financial institutions designed to acquire bad debts from banks.
- They take over these non-performing loans and work towards recovering them using various strategies, such as restructuring, rescheduling, or even liquidating the underlying assets.
- This highlights their function in debt resolution, allowing banks to clean up their balance sheets.
Statement 2: Registration and Regulation
- ARCs are indeed registered with the Reserve Bank of India (RBI).
- They operate under the framework of the SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act).
- This legal framework provides ARCs the authority to manage and recover bad debts effectively, ensuring that financial institutions can handle their NPAs more efficiently.
Conclusion
Both statements accurately describe the role and regulatory framework of ARCs:
- They purchase bad debts and manage recovery independently.
- They are registered under the RBI and operate under the SARFAESI Act.
Thus, the correct answer is option 'C': Both statements 1 and 2 are correct.
Asset Reconstruction Companies (ARCs) play a crucial role in the financial ecosystem, particularly in managing non-performing assets (NPAs) for banks and financial institutions.
Statement 1: Purchase of Bad Debts
- ARCs are specialized financial institutions designed to acquire bad debts from banks.
- They take over these non-performing loans and work towards recovering them using various strategies, such as restructuring, rescheduling, or even liquidating the underlying assets.
- This highlights their function in debt resolution, allowing banks to clean up their balance sheets.
Statement 2: Registration and Regulation
- ARCs are indeed registered with the Reserve Bank of India (RBI).
- They operate under the framework of the SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act).
- This legal framework provides ARCs the authority to manage and recover bad debts effectively, ensuring that financial institutions can handle their NPAs more efficiently.
Conclusion
Both statements accurately describe the role and regulatory framework of ARCs:
- They purchase bad debts and manage recovery independently.
- They are registered under the RBI and operate under the SARFAESI Act.
Thus, the correct answer is option 'C': Both statements 1 and 2 are correct.
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Consider the following statements with reference to the Asset Reconstruction Companies (ARCs):1. They are specialized financial institutions that purchase bad debts of a bank and recover those debts by itself.2. They are registered under the Reserve Bank of India (RBI) and regulated under the SARFAESI Act, 2002.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
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Consider the following statements with reference to the Asset Reconstruction Companies (ARCs):1. They are specialized financial institutions that purchase bad debts of a bank and recover those debts by itself.2. They are registered under the Reserve Bank of India (RBI) and regulated under the SARFAESI Act, 2002.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements with reference to the Asset Reconstruction Companies (ARCs):1. They are specialized financial institutions that purchase bad debts of a bank and recover those debts by itself.2. They are registered under the Reserve Bank of India (RBI) and regulated under the SARFAESI Act, 2002.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements with reference to the Asset Reconstruction Companies (ARCs):1. They are specialized financial institutions that purchase bad debts of a bank and recover those debts by itself.2. They are registered under the Reserve Bank of India (RBI) and regulated under the SARFAESI Act, 2002.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?.
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