Overview

An asset reconstruction company is a specialized financial institution that purchases non-performing assets or bad assets from banks and financial institutions. In other words, we can say that ARCs are in the business of buying bad loans from banks. ARC helps banks to clear balance sheets when the latter sell to ARC. It helps banks to concentrate in general banking activities. Banks instead of wasting their time and hard work after defaulters sell NPA & rsquo; For ARC at a mutually agreed price. Its primary goal is to manage and make those assets profitable, belonging to companies that are formally classified as non-performing assets, unable to generate sufficient revenue to meet their outstanding obligations Huh.

Under this, the main disadvantage is the potential loss of income that can occur in trying to resolve a crisis in distressed debt where companies are at risk of bankruptcy / bankruptcy. When ARC & rsquo; When properly managed they have a significant potential for profit if they can relieve the company from financial stress and manage to pass on the acquisition of assets to other qualified candidates. For their services, they charge a management fee or commission from the threatened company / person.

Under the SARFESI Act, the responsibility of asset management companies is to act as intermediaries between the promoter and the trust. Their main role is to see that the trust is able to take the property or loan at a nominal fee according to the reinvestment amount, resulting in a payment to the promoter for the acquisition.

The first ARC in India was a company named ARCIL which has been a pioneer in this field, setting industry standards to follow the rest of the market.

Asset Reconstruction Company

In 1997, the problem of recovery from NPA was recognized by the Government of India. & nbsp; The Narasimhan Committee report noted that an important aspect of the continuous reform process was the reduction of high levels of NPAs as a means of reforming the banking sector. & Nbsp; It was expected that in the future new NPAs may be reduced in conjunction with policy and institutional development. & Nbsp;

Accordingly, the Asset Reconstruction Company is a company registered under Section 3 of the Securitization and Reconstruction of Financial Assets and Security Interests (SRFAESI) Act, 2002 . It is regulated by the Reserve Bank of India as a Non-Banking Financial Company (u / s 45I (f) (iii) of the RBI Act, 1934. They conduct their functions as per the guidelines issued by the RBI.

The RBI has exempted ARCs from complaints falling under sections 45-IA, 45-IB and 45-IC of the Reserve Bank of India Act, 1934.

ARC is established to provide a focused approach on a non-performing debt resolution issue: -

• Separating Non Performing Loans (NPLs) from the Financial System (FS),
• Freeing up the financial system to focus on its core activities and
• Facilitate development of market for distressed property.

Asset Reconstruction Company Functions

As per the notification by the Reserve Bank of India, the following functions are performed by the RBI: -

• Financial Assets of SRFAESI Act, 2002 (as defined U / S 2 (L) acquisition);
• Change in management / sale or leasing of the borrower's business;
• liabilities rescheduling; Enforcement of
• & nbsp; Security & nbsp; Interest (As per Section 13 (4) of SRFAESI Act, 2002)
  Settlement of dues payable by the borrower.

Registration of Reconstruction Companies

No asset reconstruction company will start or take over without asset reconstruction

• Obtaining Certificate of Registration
• Not less than two crore rupees or such other amount as the total ownership, which does not exceed fifteen percent of the total financial assets or which is to be acquired by a secured bank or reconstruction company, as the Reserve Bank Notification Can according to, specify

Provided that the Reserve Bank of India may specify the amount of ownership fund for different classes or classes of securitization companies or reconstruction companies: Provided that at the commencement of this Act the existing securitization company or reconstruction company shall make an application. Before the expiry of six months from the commencement of registration with the Reserve Bank of India and notwithstanding anything contained in this sub-section, the business of the property may be continued until a certificate of registration is provided or The application for rejection registration is communicated as the case may be.

• Every securitization company or reconstruction company may apply for registration with the Reserve Bank in such form and manner as it may specify.
• The Reserve Bank of India should be satisfied with the inspection of the records or books of such company for the purpose of considering an application for registration of an asset reconstruction company.

Otherwise, the following conditions are met, namely:

• The reconstruction company has not incurred losses in any of the last three financial years.
• Such reconstruction company has made adequate arrangements for the realization of the financial assets acquired for the purpose of asset reconstruction and in paying the timely returns on investment on the due dates made in the company by qualified institutional buyers or others. Will be able Individuals.
• The directors of the reconstruction company have substantial professional experience in matters related to finance, securitization and reconstruction.
• Such reconstruction company does not constitute more than half of the total directors on the board of directors, who are either nominees of a sponsor or are associated in some way with the sponsor or any of its subsidiaries.
• No director has been convicted of any offense involving moral offense.
• The sponsor is not the holding company of the Securitization Company or Reconstruction Company or otherwise does not hold any controlling interest in such Securitization Company or Reconstruction Company
• Such securitization company or reconstruction company is in or in compliance with prudential norms specified by the Reserve Bank of India.

The Reserve Bank of India may, after fulfilling the conditions specified in sub-section (3), provide a certificate of registration to the securitization company or reconstruction company that undertakes or carries on the business of securitization or asset reconstruction is. Appropriate to impose, subject to such circumstances as he may consider.

The Reserve Bank may reject an application made under sub-section (2) if it is satisfied that the conditions specified in sub-section (3) have not been met:

Provide He Before rejecting the application, the applicant will be given an appropriate order for hearing.

Every Securitization Company or Reconstruction Company shall obtain prior approval of the Reserve Bank of India for change in the location of its management or its registered office or change in its name:

Provide That The decision of the Reserve Bank of India will be final.