The RBI on Monday set up a committee to undertake a comprehensive review of the working of asset reconstruction companies (ARCs) in the financial sector ecosystem and recommend suitable measures for enabling them to meet the growing requirements.

The six-member committee will be headed by Sudarshan Sen, former Executive Director, Reserve Bank of India.

Earlier this month, the Reserve Bank had announced setting up a committee to undertake a comprehensive review of the working of ARCs.

As per the terms of reference of the committee, the panel will review the existing legal and regulatory framework applicable to ARCs and recommend measures to improve the efficacy of ARCs.

It will also review the role of ARCs in the resolution of stressed assets including under the Insolvency and Bankruptcy Code (IBC), and give suggestions for improving liquidity in and trading of security receipts.

Besides, it has also been asked to review the business models of the ARCs.

"The committee will submit its report within three months from the date of its first meeting. Department of Regulation, Reserve Bank of India, will provide the necessary secretarial support to the Committee," the central bank said in a statement.

After the enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act in 2002, regulatory guidelines for Asset Reconstruction Companies (ARCs) were issued in 2003 to enable the development of this sector and to facilitate the smooth functioning of ARCs.

Since then, while ARCs have grown in number and size, their potential for resolving stressed assets is yet to be realised fully.