The Reserve Bank of India (RBI) has tightened norms for Asset Reconstruction Companies (ARCs) by barring them from buying financial assets from their sponsors and lenders.
Under the new norms, ARCs cannot acquire financial assets from a bank or a financial institution which is its sponsor, lender or has subscribed to the fund raised by the ARC for its operations.
Also, ARCs cannot buy financial assets from entities that belong to their parent group.
"However, they may participate in auctions of the financial assets, provided such auctions are conducted in a transparent manner, on arm's length basis and the prices are determined by market forces," the RBI said.
Currently, most ARCs are backed by state-run as well as private banks in India.
In June, the central bank allowed ARCs to buy financial assets from other ARCs, subject to certain conditions.
The central bank said that transactions with other ARCs should be settled on cash basis and price discovery for such transactions should not be prejudicial to the interest of Security Receipt holders.
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