The finance ministry has finalised the enabling legislation for establishment of asset reconstruction companies (ARCs) which would take over non performing assets from public sector banks and financial institutions (FIs) and aid in the recovery of the sticky loans.
It has been proposed that the ARCs would be set up by the private sector with Reserve Bank of India as the regulator. "We would follow stringent registration norms so that a select group of corporates are allowed entry into the sector," a senior official said.
He added that a draft Cabinet note has been finalised by the financial sector division of the department of economic affairs and would be shortly sent to the law ministry for its opinion. He, however, did not comment on the timing of the introduction of the bill in Parliament.
Officials sources said the government is planning to create an environment for setting up a number of ARCs to encourage competition in taking over the assets. As per an earlier proposal, the government intended to set up two ARCs, one dedicated to banks and the other catering to FIs.
Finance minister Yashwant Sinha had announced the setting up of ARCs in his budget speech last year. For taking over loans by the ARCs, the government would follow a two-fold method which would involve valuation of accounts by valuers as also a system of competitive bidding.
