The Reserve Bank of India may cancel the licences of a few asset reconstruction companies (ARC) who had been issued show cause notices.

RBI had earlier sent show cause notices to a few asset reconstruction companies (ARCs), seeking answers on why their licences should not be cancelled, as per media reports.

RBI is contemplating cancelling the licenses of four Asset Reconstruction Companies (ARCs) namely, Omkara Asset Reconstruction Pvt Ltd, Rare Asset Reconstruction Pvt Ltd, CFM Asset Reconstruction Pvt Ltd, and Invent ARC Pvt Ltd.

According to the reports, the move follows a special audit conducted by the banking regulator after the income tax (I-T) department raided the premises of these ARCs in 2021.

The I-T department, which carried out search and seizure operations on four ARCs in December 2021, found a nexus between the borrower group and ARCs and a maze of shell or dummy companies used in acquiring non-performing assets (NPAs), as per the media reports.

In a release, the Central Board of Direct Taxes (CBDT) said, "The search has revealed that the minimum cash payout made out by the ARCs to lender banks for acquiring the stressed assets or NPAs have usually been using the funds of the borrower group. Such funds have been routed through several layers of dummy companies controlled by the borrower group or through hawala channels."