SEBI Allows All NBFCs & HFCs to Invest in ARC Security Receipts

  • March 4, 2025
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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SEBI Allows All NBFCs & HFCs to Invest in ARC Security Receipts

Sub: eco

Sec: Monetary policy

Why in News? 

  • SEBI has permitted all Non-Banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs), (under the SARFAESI Act, 2002, which provides legal backing for securitization and asset reconstruction in India) to invest in security receipts issued by Asset Reconstruction Companies (ARCs).
  • This move aims to widen the scope of participants and boost liquidity in the distressed asset market.
  • ARCs are registered with RBI and regulated under the SARFAESI Act, 2002.
What are Security Receipts (SRs)?

  • Issued by ARCs when they acquire bad loans (NPAs) from banks & financial institutions after applying a haircut.
  • Investors in SRs receive returns based on the recovery of the distressed assets.
  • Help in resolving NPAs and revitalizing the banking sector.

Impact on Distressed Asset Market

  • Wider Participation: More institutions can now invest in distressed assets, increasing capital flow.
  • Boosts Liquidity: Increased demand for security receipts makes it easier for ARCs to sell NPAs.
  • Better NPA Resolution: Encourages active investment in bad loan recovery, strengthening the financial system.

Asset Reconstruction Companies (ARCs): ARCs are specialized financial institutions that purchase bad debts (NPAs) from banks and attempt to recover them.

Purpose:

  • Helps banks clean up balance sheets.
  • Acquires financial assets from banks & financial institutions via auctions or negotiations.

Qualified Institutional Buyers (QIBs):

  • QIBs are institutional investors who are generally perceived to have the expertise and financial capacity to evaluate and invest in the capital markets.
  • Recognized by SEBI (Securities and Exchange Board of India), QIBs enjoy special privileges in the capital markets, such as participating in IPOs, Institutional Placements, and investing in Security Receipts (SRs) issued by ARCs.
economy SEBI Allows All NBFCs & HFCs to Invest in ARC Security Receipts