Asset Reconstruction Company

Looking for Asset Reconstruction Company Registration in the vibrant environment of India? Get expert assistance for seamless registration. Procedure for Registration of an Asset Reconstruction Company End-to-End liaising with authorities for registration of an ARC Legal and Regulatory Req..

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An Overview of Asset Reconstruction Company Registration

Asset Reconstruction Company Registration is essential for entities involved in activities of an ARC. In 1997, the Government of India recognised the problems with the recovery of Non-Performing Assets (NPAs). The Narasimhan Committee Report mentioned that the important aspect of a continuous reform process is reducing the high level of NPAs as a means of banking sector reform.

An Asset Reconstruction Company, known as an ARC, is a special form of entity which is registered under the provisions of the Companies Act 2013. This company is established for the sole purpose of securitisation of financial assets. All entities that want to carry out the activities of an ARC have to register with the RBI as per requirements of the SARFAESI Act. In other words, we can say that ARCs are in the business of buying bad loans from banks. ARCs help to clean up the balance sheets of banks. It helps banks to concentrate on normal banking activities.

What is an Asset Reconstruction Company?

An asset reconstruction company is a unique financial institution that purchases the bank's debtors at a pre-agreed value and then independently works to recover the debts or related securities. The ARCs assume some of the bank's debts meet the criteria for being classified as Non-Performing Assets.

Therefore, ARCs are involved in asset reconstruction, securitisation, or both. The ARC would take over all the rights previously held by the lender (the bank) concerning the debt. Qualified Buyers can provide the necessary funds to acquire those debts.

Benefits of Asset Reconstruction Company Registration

With Asset Reconstruction Company Registration, you can benefit from numerous opportunities in the NPA market and contribute to the economic development of the country.

Below, we have discussed the benefits of Asset Reconstruction Company Registration such as:

1. Investing in Distressed Assets

An important benefit of ARC registration is the option to invest in distressed assets. Assets under distress are those that are underperforming and failing to generate the projected income. ARCs can buy these assets from banks and other financial institutions at a reduced rate.

By employing the correct approach, it is possible to reverse the situation of these assets and sell them for a substantial gain.

2. Legal Standing

Another advantage of enrolling on an ARC in India is its legal status. Under the SARFAESI Act of 2002, an ARC is conferred with specific authorities, enabling it to manage assets and make sure the collection of outstanding payments from borrowers.

It indicates that ARCs hold more legal authority than other creditors and can implement measures to retrieve funds from borrowers who are not meeting their financial obligations.

3. Profitable Business

A registered ARC enables individuals to establish their businesses in a very profitable market. The growing demand for ARCs in India presents a profitable opportunity for entrepreneurs looking to enter the industry.

By registering an ARC, you can build a reputation for your company and draw in more profitable projects.

Market Size of Asset Reconstruction Companies

According to a report, the Asset Reconstruction Companies sector is projected to achieve a decent increase in Assets Under Management (AUM), possibly surpassing Rs 10 lakh crore this fiscal, compared to Rs 8.48 lakh crore last year.

In FY23, ARCs purchased 9.7 per cent of the gross NPAs from the previous year, a significant increase from the 3.2 per cent bought in FY22, as per the RBI report.

How do Asset Reconstruction Companies Make money?

Asset reconstruction companies employ various tactics to recover credit, such as selling assets with recourse, buying bulk portfolios via auctions, and making individual account purchases with a significant equity investment and profit-sharing agreement.

Eligibility Criteria for Asset Reconstruction Company Registration

The company mandatorily fulfil the following conditions for Asset Reconstruction Company Registration:

  • The company must be registered as a company under the Companies Act, 2013.
  • After the company is formed, it must be eligible for registration as per the Asset Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003.
  • There should not be any losses incurred by the company in the previous or preceding three financial years.
  • If there is a process for the realisation of assets, then sufficient arrangements must be carried out for securitisation and asset reconstruction.
  • The ARC must be able to pay all the periodical returns.
  • The company must be capable of redeeming the amount of investment which is made by qualified buyers and other investors in the company.
  • Directors must have sufficient experience and exposure in matters related to financial affairs, including reconstruction, insolvency, financial assets, and other areas related to regulation.
  • There must be no criminal convictions against the directors.
  • All the key management executives or individuals should pass the requirements related to the fit and proper person test to comply with the requirements of the act.
  • The entity must comply with the financial and prudential norms set by the RBI.

Capital Requirement & Net Owned Fund for ARCs

As of April 24, 2024, the RBI has increased the minimum capital requirement for ARCs from ₹100 crore to ₹300 crore. According to the new guidelines, ARCs have been given a grace period to meet the updated minimum Net Owned Fund criteria by October 11, 2022.

Their goal is to have a net operating fund of ₹200 crore by March 31, 2024, and to achieve the ₹300 crore milestone by March 31, 2026. The RBI warned that failing to meet these milestones will result in regulatory action, such as limiting new business activities until the necessary NOF levels are achieved.

Documents Required for Asset Reconstruction Company Registration

The following Documents are required for Asset Reconstruction Company Registration in India:

  • Certificate of Incorporation of the Company.
  • MoA & AOA of the Company.
  • Resolutions stating that the company has not taken or accepted any form of deposits. These resolutions would apply to the board of the company.
  • Information that the directors are not disqualified as per the provisions of the Companies Act
  • Information and profiles related to the sponsors of the company
  • Information related to the management of the company. The management of the company would include the shareholders and directors of the company.
  • Certified Copy related to the certificate of audit by the auditor of the company
  • Copy of the audited balance sheet of the company
  • Copy of the directors and auditor’s report of the company
  • Net Owned Funds of the Company
  • Copy of It returns and credit bureau scores of sponsors of the company.
  • Detailed Information on Related Party Transactions.

Asset Reconstruction Company Registration Procedure

The procedure to be followed for Asset Reconstruction Company Registration in India are showcased below:

1. Application Preparation

For the registration of an Asset Reconstruction Company, the applicant has to fulfil the provisions related to the ARC registration process. All the application forms related to ARC registration have to be filled out as per Asset Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003.

2. Documents Preparation

In the next step, the applicant would have to prepare and draft the application along with the requisite documents, which are required to be submitted to RBI.

3. Verification of Records/h3>

After the documents are submitted, the RBI will verify the records. The RBI would carry out all the work related to inspecting company books and records to determine whether the company is financially sound enough to carry out the activities as required by the ARC.

4. Grant of Certificate

If there are no issues with the application, then the RBI will grant the certificate of registration to the asset reconstruction company. If the conditions related to the ARC registration are not fulfilled, then the RBI will reject the application by stating the reasons for rejecting the application.

Fees for Registering Asset Reconstruction Companies

The professional fees for registering asset reconstruction companies range between Rs.15 to Rs.30 Lakh.

Timeframe For Asset Reconstruction Company Registration

The time frame for Asset Reconstruction Company Registration is 9 months from the date of application. The process of registering Asset Reconstruction Companies (ARCs) may differ depending on the location.

Why Choose Enterslice for Registering ARC?

Selecting Enterslice as the registration partner for Asset Reconstruction Companies (ARCs) offers multiple benefits because of its knowledge, background, and extensive range of services.

Below are a few factors to register ARC with us:

1. Experience & Expertise

We possess a group of experts with extensive understanding and expertise in the financial industry, particularly in the registration and functioning of ARCs. Their skills guarantee that the Asset Reconstruction Company Registration procedure is managed effectively and meets all regulatory demands.

2. Regulatory Compliance

Enrolling for an ARC requires dealing with intricate regulatory structures and meeting compliance criteria established by the Reserve Bank of India (RBI). We offer comprehensive advice on following these rules to make sure your ARC meets all required legal criteria.

3. End-to-end Services

We provide a wide range of services that encompass all stages of the Asset Reconstruction Company Registration procedure. It involves getting ready and submitting required paperwork, coordinating with regulatory agencies, and offering continuous compliance assistance.

4. Risk Mitigation

We help minimize risks related to non-compliance by ensuring adherence to all regulatory and compliance standards, which could lead to legal consequences and operational disturbances.

5. Good Track Record

We have a history of successfully registering ARCs and other financial entities. Their industry credibility and track record of accomplishments have established them as dependable ally.

Frequently Asked Questions

ARC is an abbreviation for Asset Reconstruction Company. This company is solely formed for the reconstruction of NPAs and financial assets.

The main regulatory authority for an ARC is the Reserve Bank of India (RBI). The main law which was brought out to regulate ARCs in India is the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002).

NPAs is an abbreviation for Non-Performing Assets. These are bad loans which reduce the overall rating of the bank. Such loans may or may not be paid by the borrower.

The main function of an ARC is to take over the financial assets of a particular bank or financial institution. Hence, if a loan is provided to the borrower, the ARC would take over the functions and procedures involved in recovering the assets.

The procedures related to recovery can only be taken against the borrower after there is a transfer of legal ownership from the bank to the asset reconstruction company.

Yes, an ARC has to register with the RBI before commencing the business related to Reconstruction Company. It is a mandatory requirement that must be followed.

Section 3 of the SARFAESI Act regulates the forming of an ARC.

Increasing the liquidity of the financial systems and increasing the performance of banks are the main objectives of an asset reconstruction company. Apart from this, maintaining the credit rating of financial institutions comes under the ambit of ARC.

The minimum required for asset reconstruction companies can be Rs.300 Crores (previously 100 Crores) effective from 24th April 2024.

The largest asset reconstruction company in India is Arcil.

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