An Asset Reconstruction Company is a specified economic organization which purchases the Assets which are not performing assets or corrupt assets from banks and fiscal/financial organizations.
It includes the business of purchasing the bad loans from the banks and cleans up the bad and non-recoverable financials of the banks after that sold out these to the Asset reconstruction company. To avoid the time to be wasted and efforts the non-performing assets to be sold to the Asset reconstruction company at a mutually decided value. The main purpose is to achieve or to make profit from the non-profitable assets which are not able to provide efficient revenue to fulfill the unpaid liabilities.
The main and foremost drawback of suffering from the possible damage/loss of revenue to resolve from the crises when company suffers from insolvency. If the asset reconstruction company manages the same in a proper way then there is a chance of profit if they can release the company from fiscal/financial stress and sell off the assets in better way. For their services the administrative cost or commission is charged from the insolvent company/individual.
The securitization and reconstruction of financial assets and enforcement of securities interest (SARFESI) Act, states that the ARCs have the responsibility to perform as the mediator between the promoter and the trust where the trust has the role to take over the assets or loan at the agreed value which is subsequently paid to the promoter for the attainment/acquisition.
Process of Asset Reconstruction Company Registration
Asset Reconstruction Company shall not start or carry on the business of asset reconstruction without accomplishing a certificate of incorporation and must have a net owned fund of not less than 2 crore rupees or such other amount but maximum 15% of total financial assets acquired or to be acquired by the reconstruction company or securitization company, as specified by the notification of RBI.
Further provided that an application would be filed by existing reconstruction/securitization Company before the expiration of 6 months from commencement to the RBI.
Else following conditions to be fulfilled:
- ARCs have not suffered from any losses in three preceding financial years.
- ARCs has made proper provisions for realization of the financial resources/assets attained for the purpose of asset renewal and liable to pay monthly returns and redeem on the reserves on the due dates made in company by the (QIBs) qualified institutional buyers or other persons.
- No directors should be convicted from any offence.
- Guarantor should not be a holding company of the Securitization/Reconstruction Company or does not hold any regulatory interest in such Securitization/Reconstruction company.
- Should comply with all the prudential rules provided by the Reserve Bank of India.
If there are any changes required by every securitization/reconstruction company in the management or administration or the name and the registered office changes shall obtain the previous approval of the Reserve Bank of India for the same.
Provided that the judgment of the Reserve Bank of India shall be final and binding on all.
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