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An Asset Reconstruction Company (ARC)

An Asset Reconstruction Company (ARC)

  • An Asset Reconstruction Company (ARC) is a company incorporated under the Companies Act and registered with Reserve Bank of India under section 3 of The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
  • Recently, Union budget 2021-22 has proposed a new ARC/Bad Bank to consolidate and take over existing bad loans.

Process of ASSET RECONSTRUCTION by ABC

The real motive of acquiring debts / NPAs is to ultimately realize the debts owed by them. However, the process is not a simple one. The ARCs have the following options in this regard:

  • Change or takeover of the management of the business of the borrower.
  • Sale or lease of such business.                          An Asset Reconstruction Company (ARC)
  • Rescheduling the payment of debts – offering alternative schemes, arrangements for the payment of the same.
  • Enforcing the security interest offered in accordance with the law.
  • Taking possession of the assets offered as security.
  • Converting a portion of the debt into shares.

NEW ARC PROPOSAL 

  • The ARC/bad bank proposed in the Budget will be set up by banks , and there will be no equity contribution from the government.
  • The bank will get 15% cash and 85% security receipts against bad debt that will be sold to the ARC.
  • It will have an Asset Management Company (AMC) to manage and sell bad assets. AMC manages funds for individuals and companies. They make well-timed investment decisions on behalf of their clients to grow their finances and portfolio.                        An Asset Reconstruction Company (ARC)
  • The transfer of stressed assets to the ARC will happen at net book value.
  • This structure will reduce the load of stressed assets on the bank balance sheet and look to resolve these bad
    debts in a market-led way.

ALSO READ : https://www.brainyias.com/economic-capital-framework/

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