New Regulations to regulate Sponsors of Asset Reconstruction Companies
RBI issued the ‘Fit and Proper Criteria for Sponsors - Asset Reconstruction Companies (Reserve Bank) Directions, 2018’ on October 25, 2018 (“Directions”) laying down the provisions to regulate sponsors of Asset Reconstruction Companies (“ARC”), which are as follows:
- Any person (legal or natural) holding more than or equal to 10% of the paid-up equity capital of an ARC is eligible to be a ‘sponsor’ of such ARC;
- Sponsor’s integrity, reputation, business and track record, sources and stability of funds, ability to access financial markets, shareholding agreements and compliance with applicable laws and regulations will be taken into account while determining its eligibility;
- All Sponsors have to submit on yearly basis, declarations to ARC in the applicable forms prescribed in the Directions declaring and disclosing various information like their name, address, citizenship, details of bank accounts, sources of funds, income tax returns, details of directors, details of shareholders agreement, insolvency and bankruptcy details, etc.;
- Each ARC is required to examine the information provided by its Sponsor, and if any Sponsor is not fit and proper to hold shares, then the ARC is required to immediately report such fact to RBI; and
- Each ARC shall obtain the prior approval of RBI in case of any change in its shareholding.