About

How Asset reconstruction(ARC) company works

ARC will take over the NPA's from banks for fixed cost which is less than the NPA amount.

NPA is transferred to ARC along with any security which is pledged while taking loan.

Now ARC will issue security receipts for fixed interest rate and will raise money.(These raised money can be invested in financial institutions)

Now ARC will start legal procedure to sell the pledged security in the market. Which will take many years depending on the complications involved. Mean while Money raised by issuing security receipts are used for meeting expenses of the company, ARC has to pay timely interest on security receipts to the buyers (qualified institutional buyers)

After selling the asset by clearing all litigations, ARC company will reedem(take back) the security receipts which are issued earlier for agreed price.

About The Industry

The Indian banking system is reeling under a glut of Non Performing Assets (NPA’s). The unpaid debts of Indian corporations and households have risen to alarming levels. High level bureaucratic meetings are being held to get rid of this menace. Nonperforming assets could appear on the balance sheet of banks. This could cause a ripple effect as fears that one bank is unstable makes the entire banking industry unstable. Hence it is absolutely imperative that these bad debts be taken off the books immediately.

Asset reconstruction firms help banks to get these non performing assets off their books.

Asset reconstruction companies are in the business of buying bad loans from banks.

The laws that apply to banking companies also apply to Asset Reconstruction Companies