What is asset Reconstruction Company?
A. Company registered under the company act 2013 for the purpose of securitization & get registration from RBI as per SARFAESI act under section 3 is called as Asset Reconstruction Company (ARC). The main business of asset Reconstruction Company is to buying bad loan from bank. These are specialized financial institution that buys the bad loan, Non Performing Assets (NPAs) from banks & financial institution so that to clean up their balance sheet.It act as recovery agent for the banks as it take over the loan and advances from bank and financial institution for recovery.
On and after the commencement of this Act, assets reconstruction company shall make an application for registration to the Reserve Bank before the expiry of six months from such commencement and cannot carry on the business of securitisation or asset reconstruction until a certificate of registration is granted to it or as the case may be, rejection of application for registration is communicated to it.
Sources of Funds for ARCa. The ARC may issue bonds and debentures in regard to funds to meet its funding requirements. But the issue of security receipts is the chief, and perhaps the unique source of funds for the ARCs.
b. In accordance with the SARFAESI Act, Security Receipts is a receipt or other security issued by a reconstruction company (or, in that case, a securitization company) to any qualified institutional buyer (QIB) for a particular scheme. The Security Receipt gives a right, title, or interest to the holder (QIB) in the financial asset purchased by the ARC. These SRs issued by ARCs have impaired assets to back them up.
c. "Qualified buyer" means a financial institution, insurance firm, bank, state-owned financial corporation, state-owned industrial development corporation, trustee, or other asset reconstruction firm that has been certified under the SARFAESI Act, 2002.
d. An ARC cannot raise funds from investors who are not qualified buyers (QB). A manufacturing company, for example, looking to invest surplus capital by investing in the ARC.
Acquisition and Valuation rule by ARC
On and after the commencement of this Act, assets reconstruction company shall make an application for registration to the Reserve Bank before the expiry of six months from such commencement and cannot carry on the business of securitisation or asset reconstruction until a certificate of registration is granted to it or as the case may be, rejection of application for registration is communicated to it.
Sources of Funds for ARCa. The ARC may issue bonds and debentures in regard to funds to meet its funding requirements. But the issue of security receipts is the chief, and perhaps the unique source of funds for the ARCs.
b. In accordance with the SARFAESI Act, Security Receipts is a receipt or other security issued by a reconstruction company (or, in that case, a securitization company) to any qualified institutional buyer (QIB) for a particular scheme. The Security Receipt gives a right, title, or interest to the holder (QIB) in the financial asset purchased by the ARC. These SRs issued by ARCs have impaired assets to back them up.
c. "Qualified buyer" means a financial institution, insurance firm, bank, state-owned financial corporation, state-owned industrial development corporation, trustee, or other asset reconstruction firm that has been certified under the SARFAESI Act, 2002.
d. An ARC cannot raise funds from investors who are not qualified buyers (QB). A manufacturing company, for example, looking to invest surplus capital by investing in the ARC.
Acquisition and Valuation rule by ARC
- The SARFAESI Act allows ARCs to acquire financial assets (NPAs) by way of a bank agreement. In exchange for NPAs transferred to ARCs, banks and FIs may receive bonds/debentures. A portion of the value may be paid as Security Receipts (SRs).
- The ARCs shall acquire NPAs at a 'fair price' in accordance with an arm length principle