RBI tightens rules on unrealised management fee for ARCs under Ind AS
Current · Source: Reserve Bank of India · RBI/2022-23/182 · issued 20 Feb 2023 · ~1 min read
Quick answerRBI now requires ARCs to deduct unrealised management fee (over 180 days) from net owned funds for capital adequacy and dividend calculations, with additional provisions for security receipts below 50% face value.
The rule, in the simplest words
If an ARC (a company that buys bad loans) counts management fees (money it expects to get for managing loans) but hasn't actually received that money for more than 180 days (about 6 months), it must subtract that unpaid fee from its net owned funds (its own money) when checking if it has enough capital (safety cushion) and can pay dividends (profits to owners).
If a security receipt (a share in a pool of bad loans) drops in value to less than half of its original face value (starting price), any unpaid management fee must be subtracted from net owned funds, no matter how long it's been unpaid.
The Audit Committee (a group that checks the company's books) must review all unpaid management fees and make sure they can actually be collected before the financial statements (year-end reports) are finalized.
ARCs must show in their annual financial statements a special table that lists how old each unpaid management fee is (like how many days overdue).
How it plays out — a real example
A forex & trade-finance officer in Indore, Priya, works for an ARC that manages a pool of bad loans. She sees that the ARC has recorded a management fee of ₹10 lakh for a loan account, but the borrower hasn't paid it for 200 days. Priya knows she must now subtract that ₹10 lakh from the ARC's net owned funds when calculating its capital adequacy ratio, so she updates the finance team to ensure the next dividend payout is calculated correctly.
What changed
RBI observed ARCs recognising management fees even when unrealised for over 180 days. New rules mandate reducing such unrealised fees from net owned funds for capital adequacy and dividend purposes. Specific provisions apply when security receipt net asset value falls below 50% of face value.
What it means for you
ARCs must tighten income recognition on management fees, impacting capital ratios and dividend payouts. The Audit Committee must review recoverability. Enhanced disclosures on ageing of unrealised fees are required, increasing transparency and prudential oversight.
What you must do
Review and adjust net owned funds for unrealised management fee over 180 days as per circular.
Ensure Audit Committee reviews unrealised fee recoverability and compliance with regulations.
Update financial statements with ageing disclosure format for unrealised management fee.
Monitor security receipt net asset value to apply additional deductions if below 50% face value.
Who it affects
Asset Reconstruction Companies (ARCs) preparing Ind AS financial statements, Audit Committees of ARCs, RBI supervision teams
❓ Common questions
What triggers the deduction from net owned funds?
Management fee recognised during or after the planning period that remains unrealised beyond 180 days, or any unrealised fee where security receipt net asset value falls below 50% of face value.
Does this apply to all ARCs?
Yes, this circular applies to all Asset Reconstruction Companies preparing their financial statements as per Indian Accounting Standards (Ind AS).
What disclosures are required?
ARCs must disclose ageing of unrealised management fee in annual financial statements, including amounts outstanding, breakdown by period, and allowances held.
📜 Read the original circular — full text as issued by RBI
RBI/2022-23/182
DOR.ACC.REC.No.104/21.07.001/2022-23
February 20, 2023
Dear Sir/ Madam,
Implementation of Indian Accounting Standards (Ind AS)
Please refer to circular DOR (NBFC).CC.PD.No.109/22.10.106/2019-20 dated March 13, 2020 on the captioned subject read with paragraph 13 (iii) of Master Circular DOR.SIG.FIN.REC 1/26.03.001/2022-23 dated April 1, 2022 on Asset Reconstruction Companies.
2. It has been observed that consequent to the implementation of Ind AS, some Asset Reconstruction Companies (ARCs) have been recognising management fees even though the said fee had not been realised for more than 180 days.
3. To address the prudential concerns arising from continued recognition of unrealised income, it has been decided that ARCs preparing their financial statements as per Ind AS, shall reduce the following amounts from their net owned funds while calculating the Capital Adequacy Ratio and the amount available for payment of dividend:
Management fee recognised during the planning period 1 that remains unrealised beyond 180 days from the date of expiry of the planning period.
Management fee recognised after the expiry of the planning period that remains unrealised beyond 180 days of such recognition.
Any unrealised management fees, notwithstanding the period for which it has remained unrealised, where the net asset value of the Security Receipts has fallen below 50 per cent of the face value.
The amount reduced from net owned funds and amount available for payment of dividend shall be net of any specific expected credit loss allowances held on unrealised management fee referred to in sub-paragraphs (a), (b) and (c) and the tax implications thereon, if any.
4. The Audit Committee of the Board (ACB) shall review the extent of unrealised management fee and satisfy itself on the recoverability of the same while finalising the financial statements. It shall be ensured that the management fee is computed strictly in accordance with extant regulations.
5. ARCs shall disclose information on the ageing of the unrealised management fee recognised in their books in the format specified below as part of the Notes to Accounts in the annual financial statements:
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2022-23/182 · issued 20 Feb 2023. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are a Compliance officer at a bank this circular applies to (Asset Reconstruction Companies (ARCs) preparing Ind AS financial statements, Audit Committees of ARCs, RBI supervision teams), your first concrete step on “RBI tightens rules on unrealised management fee for ARCs under Ind AS” is: “Review and adjust net owned funds for unrealised management fee over 180 days as per circular.” (RBI issued this 20 Feb 2023).
Circular: RBI/2022-23/182 -- RBI tightens rules on unrealised management fee for ARCs under Ind AS
Issued: 20 Feb 2023
Action required: Review and adjust net owned funds for unrealised management fee over 180 days as per circular.
Action required: Ensure Audit Committee reviews unrealised fee recoverability and compliance with regulations.
Action required: Update financial statements with ageing disclosure format for unrealised management fee.
Action required: Monitor security receipt net asset value to apply additional deductions if below 50% face value.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
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BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12458&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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