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ARC can freely purchase the non performing assets from banks.
Asset Reconstruction company is a company registered under section 3 of the Securitization & Reconstruction of financial assets & Enforcement of security interest ( SARFAESI ) Act 2002
ARC is regulated by RBI as a Non – banking Financial company
RBI has exempted ARCs from the compliances under section 45- 1A ( Requirement of registration & net owned fund ) , Section 45 – 1B ( Maintenance of liquid assets ) , Section 45 – 1C ( Creation of reserve fund ) of the Reserve Bank Act, 1934 .
ARC Functions like an AMC within the guidelines issued by RBI.
The ARC transfers the acquired asset to one or more trusts at the price at which the financial assets were acquired from the originator.
ARC has been set up to provide a focused approach to Non – Performing Loans resolution issue by –
Isolating Non – Performing Loans from the financial system.
Facilitating development of market for distressed assets.
Now in India, Asset Reconstruction company are in both Public as well as Private Sector
Primary goal of ARC
•An Asset Reconstruction Company’s primary goal is to manage & to make profitable those assets which have been underperforming or become formally classified as Non- Performing Asset belonging to companies who have been unable to generate sufficient timely revenue to service their outstanding obligations.
•An ARC have the responsibility under the SARFESI Act to function as intermediaries between the promoter & the trust.
•An ARC are created to manage & recover NPA acquired from the banking system.
Function of ARC
ARC perform the following functions :
• Acquisition of Financial assets
• Rescheduling of Debts.
•Change or takeover of management
•Enforcement of security interest
•Settlement of dues payable by the borrower.
•ARCs are allowed to raise funds from QIB in order to raise cash to make an upfront payment required to buy discounted debts.
ARC Registration requirement
Every ARC seeking the Bank's registration under Section 3 of the Act, shall have a minimum Owned Fund of Rs.2 crore.
(Provided that every ARCs seeking the Bank's registration under Section 3, or carrying on business on commencement of the Securitisation Companies and Reconstruction Companies (Reserve Bank) (Amendment) Guidelines and Directions, 2004, shall have a minimum Owned Fund not less than fifteen percent of the total financial assets acquired or to be acquired by the Securitisation Company or Reconstruction Company (irrespective of whether the assets are transferred to a trust set up for the purpose of Securitisation or held in its own books) on an aggregate basis, or Rs.100 crore, whichever is less; )
