Asset Reconstruction Company Registration
What is Asset Reconstruction Company?
Asset Reconstruction Company or ARC are financial entities registered under the Companies Act 2013. The purpose of these entities is scrutinization of NPAs and they need to be registered with RBI which is the regulatory body for such entities. Section 3 of the SARFAESI Act describes the ARC as specialized financial institutions for buying bad loans or NPAs. These institutions ensure enhanced liquidity in the market and a cleaner balance sheet for their banks.
After buying the bad loans from financial institutions or banks, ARC becomes the owner of such assets and get the responsibility of the lender in the transaction. Now, they can move with the recovery process of bad loans in place of the original lender. The applicable rules and regulations of these entities are as per the SARFAESI Act.
A company willing to obtain Asset Reconstruction Company Registration certificate must apply to RBI within six months of its commencement under the SARFAESI Act. The business of asset reconstruction or scrutinization cannot be carried without the registration certificate of RBI.
Eligibility Criteria to Get Asset Reconstruction Company Certificate
A company must fulfill the following conditions to get registered as an ARC.
Procedure to Get Registration Certificate of Asset Reconstruction Company
Note: RBI may even reject applications if they find any fault in it or the previous record of the company. Muds Management helps businesses in creating an impeccable application and compile all the necessary documents to ensure that the registration process is successful.
Documents Required For Asset Reconstruction Company Registration
Funding Resources for ARC
- The ARC could issue bonds or debentures related to funds to meet its funding requirements. Issuing security receipts is one of the primary sources of funding for ARC.
- According to the SARFAESI Act, security receipts are the securities issued by a qualified reconstructional company to any certified Qualified Institutional Buyer (QIB) regarding any particular scheme. The receipt gives a title, right, or interest to the QIB in the financial assets acquired by the ARC. The security receipts have impaired assets for back up.
- The Qualified Buyer or QIB means a financial entity which can be a financial institution, bank, insurance firm, state-owned industrial development corporation, state-owned financial corporation, trustee, or any other asset reconstruction firm certified under SARFAESI Act.
- An ARC is not allowed to raise funds through investors who are not a designated qualified buyer.
Acquisition and Valuation rules for ARC:
Asset Restructuring and Resolution Strategies for ARCs
The SARFAESI act has stipulated some resolution measures for the reconstruction of Non-profitable assets brought by ARCs. Let’s get through them one by one,
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Asset Reconstruction Company or ARC are financial entities registered under the Companies Act 2013. The purpose of these entities is scrutinization of bad assets and they need to be registered with RBI which is the regulatory body for such entities. Section 3 of the SARFAESI Act describes the ARC as specialized financial institutions for buying bad loans or NPAs. These institutions ensure are enhanced liquidity in the market and a cleaner balance sheet for the seller banks. After buying the bad loans from financial institutions or banks, ARC becomes the owner of such assets and get the responsibility of the lender in the transaction. Now, they can move with the recovery process of bad loans in place of the original lender. The applicable rules and regulations of these entities are as per the SARFAESI Act.
- The ARCs acquire NPAs at a ‘fair price’ according to the arm length principle.
- The SARFAESI Act allows ARCs to acquire financial assets (NPAs) by way of a bank agreement. In exchange of NPAs transferred to ARCs, banks and Financial Institutions may receive bonds/debentures. A portion of the value may be paid as Security Receipts (SRs).
A Qualified Buyer (QB) could be a Financial Institution, a Bank, an Insurance Firm, a State Financial Corporation, a Trustee, a State Industrial Development Corporation, or any other investment asset management company on behalf of a mutual fund, a Foreign Institutional Investor registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or any of its regulations, any category of financial entity certified by SARFAESI act.