{"id":26980,"date":"2021-03-07T10:30:25","date_gmt":"2021-03-07T05:00:25","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=26980"},"modified":"2022-03-15T14:13:20","modified_gmt":"2022-03-15T08:43:20","slug":"asset-reconstruction-company","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/asset-reconstruction-company\/","title":{"rendered":"Asset Reconstruction Company: Helping Banking Sector to Recover Losses"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The Asset Reconstruction Company is acknowledged by Reserve bank of India as NBFC, whose primary goal is to handle banks&#8217; NPA. AFC&#8217;s role is very crucial on account of the re-organization of the bank debt. RBI has some strict norms for ARCs operating across the country.\u00a0<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/asset-reconstruction-company\/#What_is_Asset_Reconstruction_Company_ARCs\" >What is Asset Reconstruction Company (ARCs)?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/asset-reconstruction-company\/#SARFAESI_Act_2002-_The_Derivation_of_ARCs\" >SARFAESI Act 2002- The Derivation of ARCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/asset-reconstruction-company\/#What_are_the_Roles_of_Asset_Reconstruction_Company\" >What are the Roles of  Asset Reconstruction Company?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/asset-reconstruction-company\/#RBI_Guidelines_Regarding_Securitization_Asset_Reconstruction_Company\" >RBI Guidelines Regarding Securitization &amp; Asset Reconstruction Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/asset-reconstruction-company\/#Registration_of_Company_under_SARFAESI_Act\" >Registration of Company under SARFAESI Act<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/asset-reconstruction-company\/#What_are_the_Allowable_Business_Activities_for_Asset_Reconstruction_Company\" >What are the Allowable Business Activities for Asset Reconstruction Company ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/asset-reconstruction-company\/#Prerequisites_Regarding_Asset_Reconstruction_Companies\" >Prerequisites Regarding Asset Reconstruction Companies<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/asset-reconstruction-company\/#How_Securitization_Company_SC_Reconstruction_Company_RC_Deploy_Funds\" >How Securitization Company (SC)\/ Reconstruction Company\n(RC) Deploy Funds?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/corpbiz.io\/learning\/asset-reconstruction-company\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Asset_Reconstruction_Company_ARCs\"><\/span>What is Asset Reconstruction Company (ARCs)?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>An Asset Reconstruction\nCompany refers to a financial institution that buys the bad assets or NPA\n(non-performing asset) from banks and cleans up their balance sheets. In simple\nterms, ARCs engaged in the business of purchasing bad loans from banks. This\nallows the banks to shift their entire focus on the core competency. ARCs\nenable the banks to mitigate the requirement of following up with the clients\nto recover the debt.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"SARFAESI_Act_2002-_The_Derivation_of_ARCs\"><\/span>SARFAESI Act 2002- The Derivation of ARCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Securitization and\nReconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI)\nAct, 2002 provides the legal grounds for establishing ARCs in India. Section 2\n(1) of the Act provides meaningful description of Asset Securitization.\nLikewise, ARCs are also defined as u\/s 3 of the Act.<\/p>\n\n\n\n<p>The SARFAESI Act provides service regarding the reconstruction of bad assets with the interference of courts. As of now, an ample number of ARCs were operating pan India under the RBI\u2019s regulation. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Roles_of_Asset_Reconstruction_Company\"><\/span>What are the Roles of  Asset Reconstruction Company? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/03\/What-are-the-Roles-of-Asset-Reconstruction-Companies.png\" alt=\"Roles of Asset Reconstruction Companies\" class=\"wp-image-27037\" width=\"529\" height=\"529\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/03\/What-are-the-Roles-of-Asset-Reconstruction-Companies.png 900w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/03\/What-are-the-Roles-of-Asset-Reconstruction-Companies-150x150.png 150w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/03\/What-are-the-Roles-of-Asset-Reconstruction-Companies-300x300.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/03\/What-are-the-Roles-of-Asset-Reconstruction-Companies-768x768.png 768w\" sizes=\"(max-width: 529px) 100vw, 529px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"RBI_Guidelines_Regarding_Securitization_Asset_Reconstruction_Company\"><\/span>RBI Guidelines Regarding Securitization &amp; Asset Reconstruction Company <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The <em><strong>Reserve Bank of India<\/strong><\/em><sup><a href=\"https:\/\/www.rbi.org.in\/\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> (RBI) introduced some norms related to the securitization and Asset Reconstruction Companies (ARCs). Given SARFAESI Act, the Reserve Bank has introduced the Guidelines &amp; Directions, 2003 for these companies.<\/p>\n\n\n\n<p>The exception of the\ndirectors&#8217; scope is that most of the functional part of the guidelines apply to\nthe asset acquisition by a SARC but does not become active if such assets are\nheld as trustee. The SARC has to be a trustee to such trust and acquire assets\nas trustees to fall beyond the scope of the guidelines.<\/p>\n\n\n\n<p>SCs\/RCs shall obtain\nmemberships of JLF (Joint lender\u2019s forum) as mentioned on &#8216;Framework for Revitalized\nDistressed Assets in the Economy- Directions related to Corrective Action Plan\n(CAP) and JLF shall be a part of the process on account of such stressed\nassets.&nbsp;<\/p>\n\n\n\n<p>SCs\/RCs shall avail\npermission from RBI when transfers result in considerable change.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Registration_of_Company_under_SARFAESI_Act\"><\/span>Registration of Company under SARFAESI Act<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Every Reconstruction Company is required to make an application in a form prescribed by the authority.<\/li><li>The company must avail a registration certification from the bank as mentioned u\/s 3 of the Act.<\/li><li>Such a company can carry activities regarding securitization and asset reconstruction after availing of the required certificate.&nbsp;<\/li><li>The company must start a business within six months from the date of issuance of the registration certificate. However, the authority can furnish additional 12 months to the company in this regard under special circumstances.<\/li><li><a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFC<\/strong><\/a> authorized as SC\/RC with the bank as per Section 3 of the SARFAESI Act, 2002 shall not be subjected to sections 45 -IA, 45-IB, and 45-IC of RBI Act, 1934.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Allowable_Business_Activities_for_Asset_Reconstruction_Company\"><\/span>What are the Allowable Business Activities for Asset Reconstruction Company ?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>A Securitization Company or Reconstruction Company,<\/strong><\/em><\/p>\n\n\n\n<ul><li>Shall carry out activities related to securitization and asset reconstruction only.&nbsp;<\/li><li>Cannot utilize deposits to procure funds.&nbsp;<\/li><li>The company undertaking business that doesn&#8217;t align with the law would result in the cancellation of registration.<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important\"><a href=\"https:\/\/corpbiz.io\/learning\/cost-of-company-registration-in-india\/\">What is Cost of Company Registration in India?<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Prerequisites_Regarding_Asset_Reconstruction_Companies\"><\/span>Prerequisites Regarding Asset Reconstruction Companies<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>There are few Prerequisites Regarding Asset Reconstruction Companies in terms of net owned funds; Capital, etc are as follows:-<\/strong><\/em><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Net Owned Fund<\/h3>\n\n\n\n<p>The Reconstruction\nCompany&#8217;s Net-owned fund should not fall below the lower threshold limit, i.e.,\nRs 2 crore or other higher amount set by the RBI.&nbsp;<\/p>\n\n\n\n<p>Any SC\/RC pursuing\nbusiness activities must possess a minimum Net Owned Fund of 15% of the total\nfinancial assets acquired by the SC \/ RC on an aggregate basis, or Rs 100\ncrore, whichever is less. The minimum net owned fund shall be maintained on an\nongoing basis.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Capital Adequacy Requirement<\/h3>\n\n\n\n<p>All Securitization\nCompany or Reconstruction Company (SC\/RC) is liable to maintain a capital adequacy\nratio, which should not be lower than 15% of its total risk-weighted assets.\nThe calculation of risk-weighted assets must be carried out on account of a\nweighted aggregate of on-balance sheet and off-balance sheet particulars as\nmentioned.&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_Securitization_Company_SC_Reconstruction_Company_RC_Deploy_Funds\"><\/span>How Securitization Company (SC)\/ Reconstruction Company\n(RC) Deploy Funds?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>An\nSC\/RC, as a promoter and with the aim to set up a joint venture, invests in the\nequity share capital for the purpose of asset reconstruction.<\/li><li>SC\/RC\nmay opt to invest any surplus funds on account of policy framed in this context\nby its BODs, only in Government securities with Small Industries Development\nBank of India, scheduled commercial banks, National Bank for Agriculture, or\nsuch other entity may be prescribed by bank occasionally.<\/li><li>SC\/RC\nis not liable to make an investment in land or building provided that the\nrestriction shall not be applicable to the investment by SC\/RC in buildings and\nland for its own use up to 10% of its fund.&nbsp;<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Regulatory Reporting<\/h3>\n\n\n\n<p>Every SC\/RC requires\nsubmitting a quarterly statement, namely SCRC 1 &amp; SCRC 2, to the Bank\nwithin 15 days of the end of the quarter.<\/p>\n\n\n\n<p>Every SC\/RC requires\nfurnishing a copy of the audited balance sheet to banks. They are also required\nto provide directors&#8217; \/ auditors&#8217; report within one month from the date of AGM\nin which the audited SC\/RC&#8217;s audited account is adopted.&nbsp;Companies may be\nscrutinized periodically by internal\/external agencies.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Helping banks settle fiscal issues that occur due to avalanche of bad debts is the primary goal of Asset Reconstruction Company. After dispensing the bad debt to such companies, banks can shift their entire focus on activities that matter the most.\u00a0 <\/p>\n\n\n\n<p>Being a central agency, Asset Reconstruction Company works through a legitimate protocol to acquire bad loans from financial institutions. By doing so, they let banks operate in a seamless fashion as long as possible.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important\"><a href=\"https:\/\/corpbiz.io\/learning\/benefits-of-private-company-registration\/\">Exciting Benefits of Private Company Registration That You Can\u2019t Ignore!<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Asset Reconstruction Company is acknowledged by Reserve bank of India as NBFC, whose primary goal is to handle banks&#8217; NPA. AFC&#8217;s role is very crucial on account of the re-organization of the bank debt. RBI has some strict norms for ARCs operating across the country.\u00a0 What is Asset Reconstruction Company (ARCs)? An Asset Reconstruction [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":27035,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1,647],"tags":[1584],"acf":{"service_id":"1"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":6422,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/26980"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=26980"}],"version-history":[{"count":17,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/26980\/revisions"}],"predecessor-version":[{"id":41183,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/26980\/revisions\/41183"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/27035"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=26980"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=26980"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=26980"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}