Assets Reconstruction Companies

The overabundance of non-performing assets (NPAs) is wrecking havoc on the Indian financial industry. Corporations and households in India now owe worrying amounts in outstanding debt. To eliminate this threat, high level bureaucratic discussions are being convened. Nonperforming assets could show up on a bank's balance sheet. As a result of concerns that one bank is unstable, the entire banking sector may become unstable. Therefore, it is extremely crucial that these bad loans be removed from the books right now. 

 

Asset reconstruction companies assist banks in removing these non-performing assets off their balance sheets.

 

Companies that specialise in asset reconstruction buy troubled loans from banks. For instance, if a bank lends money to a person or business, they anticipate getting periodic principal and interest payments in return. However, these loans are categorised as nonperforming assets when they don't receive such regular payments (principal and interest) for a long time (let's say 90 days). If these NPAs are permitted to remain on the bank's balance sheet, investor trust in the bank will be reduced.

As a result, banks sell these subprime loans to experts known as asset reconstruction firms. These businesses specialise in purchasing bank bad debts at a significant discount. Then, these businesses take further steps to get the money they are owed. They make a profit if they can get the money back; otherwise, they lose it.

 

These organisations are regarded as banking entities for legal purposes. As a result, Asset Reconstruction Companies are subject to the same laws as banking institutions. Additionally, they are governed by the same laws that apply to banks. As a result, they are subject to the same regulatory authorities as banks, namely banking ombudsmen.

 

A separate piece of legislation regulating how ARCs operate is needed because there is insufficient law enforcement in India. This is because ARCs have a reputation for using coercive methods to collect debt from uncooperative creditor. 

 

Asset reconstruction businesses can buy assets in a few different methods. The banking regulator rigorously monitors every element of their business, including the acquisition of assets.

 

Fundraising: Qualified Institutional Buyers (QIB) are allowed to provide funds to ARCs in order to raise money for an upfront payment needed to purchase discounted debts. To raise this money, ARCs could sell shares or issue debt securities. However, it is the ARC's duty to watch out for individual investors who might put money into these securities. Due to the substantial risk involved, ARCs are only available to QIBs with the financial wherewithal to absorb such a loss. 

 

Partnership Model: ARCs frequently do not purchase debt from banks directly. In such situations, the debt is remains recorded on the bank's books. The ARC, however, is employed by the bank to provide debt recovery services. The bank and the ARC share the revenues produced in this way according to a predetermined percentage.

 

Complex accounting rules apply to ARCs. Due to the fact that they purchase debt from various sources. They are not, however, permitted to combine these debts. This requires them to maintain separate accounts for each batch of debt they buy. To safeguard the interests of investors who place money in ARCs, this is a legal necessity. However, it also aids the ARCs in calculating the profit margin for each deal. This enables them to choose wisely the next time they buy debt.

 

Asset reconstruction is the term used in India to describe the process of eliminating debt from balance sheets. However, it is known as securitization in other nations. Both of these terms though indicate the same thing. However, there are specialised businesses that carry out asset reconstruction in India. Less restrictions on the sale of debt apply in industrialised nations like the United States. Therefore, debt can be sold to various business entities and even to private individuals.

 

Asset reconstruction firms have the same recourse rights as banks in the event of nonpayment. This means that after a fair amount of time, they may take possession of an asset if the debt they are recovering is secured by it (usually 60 days). On the other hand, businesses can launch civil lawsuits against creditors to recover such obligations if the debt is not secured. 

 

A significant legislation in the contracts act also governs asset rehabilitation firms. The statute of limitations refers to this. It establishes which debts can be collected and which cannot. A debt is regarded uncollectible and the court will dismiss a civil lawsuit if it hasn't been paid off for three years in accordance with the statute of limitations. The Asset Reconstruction Company must consider these serious ramifications. This gives the NPAs they purchase an expiration date, which is why, These debts have no value at all if they are not paid off within three years.

 

The closer the debts are to the three-year milestone, The deeper the discounts at which the loans are sold to the Asset Reconstruction Company.

 

Asset Reconstruction Companies (ARCs) were established to establish a method for removing Non Performing Assets (NPAs) from secured lenders' books and releasing their value (NPA).

 

 

1. UV Asset Reconstruction Company Limited,(New Delhi).

 

2. Edelweiss Asset Reconstruction Company Limited,(Mumbai).

 

3. India SME Asset Reconstruction Company Limited (Mumbai ).

 

4. Invent Assets Securitisation and Reconstruction Private Limited ( Mumbai ).

 

5. Phoenix Asset Reconstruction Company Private Limited ( Mumbai ).

 

6. Pridhvi Asset Reconstruction and Securitisation Company Limited ( Hyderabad ).

 

7. Reliance ARC Limited ( Mumbai ).

 

8. Pegasus Assets Reconstruction Private Limited ( Mumbai ).

 

9. Alchemist Asset Reconstruction Company Limited ( New Delhi ).

 

10. International Asset Reconstruction Company Private Limited ( Mumbai ).