ARCs are set-up to acquire bad loans from banks and financial institutions after appropriate haircuts and issue security receipts (SRs).
In a gazette notification issued on February 28, Sebi said, “all NBFCs including HFCs regulated by the Reserve Bank of India (RBI) are hereby specified as qualified buyers for the purposes of SARFAESI Act (the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002)”.
This comes with safeguards to avert defaulting promoters from claiming back the secured assets through SRs.
Sebi said that such “NBFCs including HFCs will have to ensure that the defaulting promoters or their related parties do not directly or indirectly gain access to secured assets through security receipts; and such NBFCs including HFCs shall comply with such other conditions as the RBI may specify from time to time”.
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As per the SARFAESI Act, only qualified buyers can invest in security receipts.
