Reserve Bank of India has issued Fit and Proper Criteria for sponsors of Asset Reconstruction Companies (Reserve Bank) Directions, 2018 vide a notification on 25th October, 2018.
Reconstruction Company: Pursuant to the provisions of section 2(v) of SARFAESI Act, 2002, reconstruction company means a company formed and registered under the provisions of Companies Act, 1956/2013 for the purpose of asset reconstruction.
Asset Reconstruction: As per the provisions of section 2(b) of the SARFAESI Act, 2002, asset reconstruction means acquisition, by any reconstruction company, of any right or interest of any bank or financial institution in any financial assistance for the purpose of realization of such financial assistance.
Sponsors: In accordance to the provisions of section 2(z)(h) of SARFAESI Act, 2002, sponsor means any person holding not less than 10% of the paid-up equity capital of an asset reconstruction company.
Determinants of Fit and Proper Criteria of Sponsors:
- Integrity, reputation, track record of the sponsor in accordance with the standards of good corporate governance and compliance with applicable laws and regulations;
- Business record and experience of the sponsor;
- Sources and stability of funds for acquisition and the ability to access financial markets;
- Shareholding agreements and their impact on control and management of the ARC.
Declaration to be furnished by the Sponsors to ARC
Declaration (Form I): Sponsors are required to give self- declaration to the ARC as per From I.
Further, ARC shall obtain the said declaration from all the sponsors by 30th April every year.
Information to be submitted by the ARC to RBI
Certificate on changes in the status of the sponsors (Form III): ARC shall submit Form III along with additional information in Form I (Part E) by 31st May every year.
Application for change in shareholding of ARC: ARC shall submit an application for obtaining prior approval for change in shareholding of ARC to the RBI along with information as stated Form II.