Mumbai: Asset Reconstruction Companies (ARCs) have approached the central bank, seeking regulatory intervention that would allow them to raise equity capital from the market and improve their liquidity and net worth.

The latest plea from the ARCs to the Reserve Bank of India (RBI) comes even as banks are insisting on only cash bids from these distressed debt aggregators and they face increasing competition from the government-backed National Asset Reconstruction Co (NARCL).

RBI rules for ARCs say that these bad loan aggregators must reach a net worth of ₹300 crore by March 2026. Currently, only a third of the 27 ARCs have reached that milestone. Allowing ARCs to list will help them raise equity from the markets to step up acquisitions and also enhance their net worth, industry executives said.

Hari Hara Mishra, CEO of the Association of ARCs in India, confirmed that there has been an approach by the industry to get clarity on the regulator's thinking on raising equity capital by ARCs. "With ARC purchases now moving to an all-cash basis, they need more liquidity and since debt markets are not easily accessible, the best way is to raise equity which will give them liquidity and higher net worth according to RBI norms. We already have recommendations from the key advisory group in 2011 and just need some clarity from RBI," Mishra said.

Mishra was referring to the Key Advisory Group on ARC reforms constituted by the finance ministry in 2011 which among other things recommended allowing ARCs to go public. "Since the ARC industry is capital intensive and the existing investors lack adequate resources to fund the expansions, ARCs may be allowed to tap the capital market. This will also increase public scrutiny and higher disclosures," the committee had said in its report, marking this reform as a "desirable" and not "essential" one.

ARCs are seeking clarification from the regulator as there is no mention or reference of stock listing either in RBI regulations for ARCs or even the SARFAESI Act. "ARCs going public will increase resources available with them and increase public scrutiny and higher disclosures. This will also result in improved transparency," a letter written by ARCs to the regulator said.

The latest RBI data show that the aggregate book value of assets acquired by ARCs increased 22% to ₹10.25 lakh crore in FY24 from ₹8.39 lakh crore a year ago. ARCs have issued security receipts worth ₹2.83 lakh crore as of March 2024 to acquire these assets, the RBI data show.

The ARC business in India started in 2002 when Arcil, backed by some of the largest banks like State Bank of India, ICICI Bank, Punjab National Bank and IDBI Bank, came into existence under The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002.