The leading problem in the country right now is alarming volume of Non-Performing Assets with the banking system. Several attempts were made to tackle NPAs. A serious such step was the creation of dedicated institutions called Asset Reconstruction Companies or ARCs that purchases bad assets or NPAs from banks at a negotiable price and helps banks to clean up their balance sheets (by removing the NPAs). Performance of the ARCs are under evaluation in the context of the mounting NPAs. At the same time, the new Insolvency and Bankruptcy Act will give a critical role to the ARCs in settling the bad assets through the insolvency process.
What are ARCs?
An Asset Reconstruction Company is a specialized financial institution that buys the NPAs or bad assets from banks and financial institutions so that the latter can clean up their balance sheets. Or in other words, ARCs are in the business of buying bad loans from banks.
ARCs clean up the balance sheets of banks when the latter sells these to the ARCs. This helps banks to concentrate in normal banking activities. Banks rather than going after the defaulters by wasting their time and effort, can sell the bad assets to the ARCs at a mutually agreed value.
Asset management companies have the responsibility under the SARFESI Act to function as intermediaries between the promoter and the trust. They charge a fee for their services and their role is to see to it that the trust is able to take over the assets or loans at a nominal fee according to the revalued amount, which is consequently paid to the promoter for the acquisition.
Asset Management Companies in the west perform many of the same functions ARCs were setup in India to provide. India’s first ARC was a company named ARCIL which has been a leader and a pioneer in this field, having established industry standards for the rest of the market to follow.
Functions of ARC’s:-
Resolution Strategies that can be followed by ARCs while restructuring the assets
The guidelines on recovery of money from the resolution process by the ARCs say that regaining the value through restructuring should be done within five years from the date of acquisition of the assets. SARFAESI Act stipulates various measures that can be undertaken by ARCs for asset reconstruction. These include:
The last step of ‘enforcement of security interest’ means ARCs can take possession/sell/lease the supported asset like land, building etc.
ARCs and the secured creditors cannot enforce the security interest under SRFAESI unless at least 75% by value of the secured creditors agree to the exercise of this right. Besides restructuring, the ARCs can perform certain other functions as well. They are permitted to act as a manager of collateral assets taken over by the lenders by receiving a fee. Similarly, they can also function as a receiver, if appointed by any Court or DRT.
What are ARCs?
An Asset Reconstruction Company is a specialized financial institution that buys the NPAs or bad assets from banks and financial institutions so that the latter can clean up their balance sheets. Or in other words, ARCs are in the business of buying bad loans from banks.
ARCs clean up the balance sheets of banks when the latter sells these to the ARCs. This helps banks to concentrate in normal banking activities. Banks rather than going after the defaulters by wasting their time and effort, can sell the bad assets to the ARCs at a mutually agreed value.
Asset management companies have the responsibility under the SARFESI Act to function as intermediaries between the promoter and the trust. They charge a fee for their services and their role is to see to it that the trust is able to take over the assets or loans at a nominal fee according to the revalued amount, which is consequently paid to the promoter for the acquisition.
Asset Management Companies in the west perform many of the same functions ARCs were setup in India to provide. India’s first ARC was a company named ARCIL which has been a leader and a pioneer in this field, having established industry standards for the rest of the market to follow.
Functions of ARC’s:-
Resolution Strategies that can be followed by ARCs while restructuring the assets
The guidelines on recovery of money from the resolution process by the ARCs say that regaining the value through restructuring should be done within five years from the date of acquisition of the assets. SARFAESI Act stipulates various measures that can be undertaken by ARCs for asset reconstruction. These include:
- taking over or changing the management of the business of the borrower,
- the sale or lease of the business of the borrower
- entering into settlements and
- restructuring or rescheduling of debt.
- enforcement of security interest
The last step of ‘enforcement of security interest’ means ARCs can take possession/sell/lease the supported asset like land, building etc.
ARCs and the secured creditors cannot enforce the security interest under SRFAESI unless at least 75% by value of the secured creditors agree to the exercise of this right. Besides restructuring, the ARCs can perform certain other functions as well. They are permitted to act as a manager of collateral assets taken over by the lenders by receiving a fee. Similarly, they can also function as a receiver, if appointed by any Court or DRT.