The Reserve Bank of India (RBI) on Monday directed asset reconstruction companies (ARCs) to deduct management fees from their capital where certain criterion is not met. The move is aimed at addressing the prudential concerns arising from continued recognition of unrealised income, the central bank said.
The RBI has directed ARCs to deduct from net owned funds where the management fee is not realised in 180 days from the planning period, irrespective of when the fees were recognised. Similarly, ARCs will have to deduct unrealised management fees where the net asset value of security receipts has fallen below 50% of the face value.
According to the norms, planning period means the time set by ARCs for creating a plan for realisation of financial assets acquired for reconstruction. The RBI has also set a limit of six months on the planning period.
ARCs recognise management fees on accrual basis. Management fees recognised during the planning period must be realised in 180 days from the date of expiry of the planning period. Management fees recognised after the planning period should be realised in 180 days from the date of recognition.
“It has been observed that consequent to the implementation of Ind AS, some ARCs have been recognising management fees even though the said fee had not been realised for more than 180 days,” the RBI said in a notification.
The RBI has also asked ARCs to review the extent and recoverability of unrealised management fee while finalising the financial statements and ensure that norms are followed. ARCs are also required to disclose information on the ageing of unrealised management fee recognised in their books in their annual financial statements.