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RBI not in favour of giving special status to NAMCO

RBI not in favour of giving special status to NAMCO

RBI took stock of NPAs of banks and various measures being proposed by the government. Its opinion on various counts is:

  1. RBI is against giving any special status to the proposed National Asset Management Company to tackle the growing menace of non-performing assets (NPAs) of the banking sector. In principle, RBI is not against the proposal of the formation of NAMCO, however, RBI is willing to consider it as another asset reconstruction company. 15 asset reconstruction companies have already got registered with the RBI.

Why RBI is against favour to NAMCO?

  • It will create a non-level playing field for other ARCs.
  1. RBI is also against the proposal to remove the 49 per cent cap on equity stake of entities in asset reconstruction companies (ARCs).

Note: The ceiling for FDI in ARCs was increased to 74 per cent subject to the condition that no sponsor may hold more than 50 per cent of the shares in ARC. In other cases of domestic sponsors also, the same threshold is followed in order to ensure level playing field

Logic behind the cap

  • It will ensure a widely held shareholding.
  • Being lightly regulated entities, may have corporate governance issues.
  • Wider participation means wise decision

Logic behind the removal of cap

  • Removing the cap will help in quicker decision making

Why RBI is against the removal of cap

  • It may lead to unfair compromises forced on borrowers,
  • May enforce biased decision
  • May not fulfill the objective of ARC performing as supportive system with greater emphasis on asset reconstruction rather than asset stripping.
  1. The RBI was not receptive to the idea of setting up a special purpose infrastructure fund or a development financial institution which would lend to projects that require last-mile funding and are classified as stressed assets.
  2. It favours banks and FIs entery into take-out financing arrangement with IDFC and other FIs.
  3. It permits banks to have flexible structuring and refinancing of project loans (5:25 scheme).
  4. It also permits banks to issue long-term bonds with minimum maturity period of seven years with certain incentives.
  5. It has also allowed the creation of infrastructure debt funds as NBFCs or mutual funds.
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