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Asset Reconstruction Company Registration

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What do you mean by Asset Reconstruction Company Registration (ARCs)?

Financial institution that purchases Non-Performing Assets or bad assets from banks and financial institutions is called Asset Reconstruction Company. Else, we might assume which ARCs are purchasing poor loans from banks in the business transaction. It lets the banks clear up the balance when these toxic assets are sold to the ARCs. This lets banks rely on regular banking transactions. The main drawback is the potential loss of income that can be suffered by attempting to resolve distressed debt crises where companies are at risk of bankruptcy / insolvency. When properly managed by ARCs, they have a significant profit potential if they can relieve the company from financial stress and pass on the acquisition of the assets to other worthy candidates. From the distressed company/individual they charge a management fee or commission for their services.

The asset management companies ' responsibility is to act as intermediaries under the SARFESI Act between the investor and the trust. The main role of ARCs is whether the trust is able to take over the property or mortgages at a nominal fee depending on the revalued sum, which is then charged to the lender for the sale. ARCIL is India's first ARC to have ruled in this region. We also developed industry standards to be adopted for the rest of the market.

Describe the history

In 1997, the Indian government accepted the problem of rehabilitation from NPAs. The Narasimhan Committee Report addresses the important aspect of the current reform process of increasing the high level of NPAs as a way of restructuring the banking sector. When integrating strategy and organizational growth, current NPAs are projected to be lower in the future.

Under Section 3 of the Securitization and Reconstruction of Financial Assets and Security Interest Enforcement Act (SRFAESI) 2002, Asset Reconstruction Company is required to be registered under this Act. We were governed by the Indian Reserve Bank as a Non Banking Financial Company (u / s 45I(f)(iii) of the RBI Act, 1934). We follow recommendations provided by the RBI in the course of their operations. RBI has excluded ARCs from enforcement under section 45-IA, 45-IB and 45-IC under the Reserve Bank Act, 1934.

ARC was developed to provide a clear approach to the issue of non-performing loans by:-

Isolating Non-Performing Loans (NPLs) from the Financial System (FS), opening up the financial system to reflect on its key operations and promoting business growth of distressed capital.

What are Asset Recovery Company (ARC) Functions?

RBI conducting roles as per RBI Notification are:-

  • Financial assets Acquisition(as specified in subsection 2(L) of the SRFAESI Act, 2002); 
  • Purchase or lease of borrower's business / change or acquisition of management;
  • Rescheduling of debts; 
  • Protection obligation (as defined in section 13(4) of the SRFAESI Act, 2002); payment by borrower of duties payable.

What is the procedure of registration of Reconstruction Companies?

No asset reconstruction corporation shall be allowed to begin or take over the asset reconstruction market without obtaining a registration certificate  acquiring net owned fund of not less than two crore rupees or such other value not exceeding fifteen percent of the total financial assets gained or obtained by the securitization firm or reconstruction company, As the Reserve Bank may decide by notification Given that by notification the Reserve Bank of India may specify the amount of owned funds for different classes or categories of securitization or reconstruction companies:

Furthermore, if the existing securitization company or reconstruction company submits a request for registration to the Reserve Bank of India at the beginning of this Act before the expiry of six months from such commencement and despite everything found in this sub-section, the business of asset restoration may proceed until the certification for registration is issued or, as the case may be, it is informed of the denial of the request for registration.

Any securitization firm or rehabilitation company shall apply to the Reserve Bank for registration in the type and manner defined by it.

Reserve Bank of India may allow examination of records or books of such business to fulfill the function of considering the request for registration of property Reconstruction Business. Therefore, the following conditions are met, namely:

  • Recovery agency has not suffered any damages in any of the preceding three financial years.
  • This reconstruction company has made appropriate provisions for the recovery of the financial assets purchased for the purpose of property reconstruction and is able to pay annual dividends and repay on the investments made by eligible equity investors or other individuals on the respective due dates in the business.
  • The restoration company's executives have ample professional experience in funding, securitization and rehabilitation issues.
  • The restoration company's executives have ample professional experience in finance, securitization, and rehabilitation matters.
  • No executives are guilty of any crime involving moral turpitude.
  • Partner is not a holding company of the Securitization Firm or the Reconstruction Company or has no ownership stake in the Securitization Company or the Reconstruction Company. This securitization or restoration business has complied with or is in a position to comply with the prudential regulations laid down by the Reserve Bank of India.

Upon fulfillment of the conditions set out in subsection (3), the Reserve Bank of India may issue a certificate of registration to the Securitization Company or Reconstruction Company for the commencement or continuation of the securitization or reconstruction sector, subject to such conditions as it may consider appropriate to impose. The Reserve Bank may refuse the request made under subparagraph (2) if it is satisfied that the conditions set out in subparagraph (3) have not been met:

Provided the claimant has a fair opportunity to be heard before refusing the request.

Each securitization business or rehabilitation company shall obtain the Reserve Bank of India's prior approval for any substantial change in its management or change in its registered office location or change in its name: given that the Reserve Bank of India's decision is final.

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