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
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.