Asset Reconstruction Companies Rahul
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Transcript of Asset Reconstruction Companies Rahul
8/7/2019 Asset Reconstruction Companies Rahul
http://slidepdf.com/reader/full/asset-reconstruction-companies-rahul 1/20
8/7/2019 Asset Reconstruction Companies Rahul
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In India, level of non-performing assets
with banks & FIs alarmingly highdue to:
Economic conditionPoor repayment environment
Government intervention in loan sanctions
Loan waivers
The Government of India has proactively takensteps to clean up bad loans in the banking
system.
8/7/2019 Asset Reconstruction Companies Rahul
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�Securitization
�Asset Reconstruction
�
Exemption from registration of securityreceipt
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�Narasimham committee II recommended
formation of ARC with a view to clean the
balance sheet of banks.�ARC is a company which is set up with
the objective of:� Taking over distressed assets (NPA) from banks
or financial institutions� To reconstruct or re-pack these assets to make
those assets saleable
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�Purchase the NPA from banks & FI at a
discount as high as 75% of the original
value of the loan�NPAs can be assigned by Banks & Fis
� In turn these assets will be
reconstructed/re-packed & then sold in
the market in various forms or recoveredthrough securitization & reconstruction of
enforcement of security
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�Steps taken by government of India &
RBI-
� Enactment of S
ecuritisation & Reconstuction of Financial Assets & Enforcement of security
interest act 2002 & issuing of detailed draft
guidelines by RBI
� Stengthening of credit appraisal & monitoring
system, risk based supervision, institution of
debt recovery tribunals & Corporate Debt
Restructuring (CDR) etc.
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�Formation of SARFAESI Act, 2002�Enables Banks & FIs to realize long term
assets, manage problems of liquidity, asset
liability mismatch & improve recovery &reduce NPLs�An ARC may acquire an interest in financial
assets of any bank/FI�Enables SC/ARC to take possession of
secured assets of borrowers & realize thesame
�The Act also empowers the RBI to stipulateguidelines & directions to ARCs
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� Centralisation of bad loans in one or few hands� The buying of impaired assets from banks or FIs
by ARCs will be able to use their time, energy &
funds for development of their business� Bank do not have to deal with problem clients� It deals with a larger portfolio, it can mix up good
assets with bad ones & make a sale which ispalatable to buyers
� It is easier to do capital-market based fundingfor an ARC than for the Banks themselves
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� Asset Reconstruction Company (india) Ltd, (ARCIL)
� Assets Care Enterprise Ltd
� A SREC (India) Ltd
� Pegasus Assets Reconstuction Pvt. Ltd� Dhir & Dhir asset Reconstruction & securitisation
company Ltd
� Pridhvi Asset Reconstruction & Securitisation
Company Ltd� Phoenix ARC Pvt Ltd
� JM Financial Asset Reconstruction Company Ltd
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�First Asset Reconstruction Company tocommence business of resolution of NPAs
� Initial equity of Rs.10 Cr with ICICI bank,
IDBI &S
BI to pick up 24.5% stake each(remaining to be acquired by HDFC, IDBIbank & UTI bank)
�Commenced business imediately afterenactment of the Securitisation Act, 2002
�ARCIL has launched retail NPAs resolutioninitiative throuh ARCIL-Arms (a division of ARCIL)
�Assets under management over Rs. 8000 Cr
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� Minimum owned funds of RS. 2 Cr ² Sec 3� CAR of at least 15% of total final assets OR Rs.100
Cr, whichever less� Reach the level of minimum owned fund within
three months� No account to be taken whether assets are
transferred to trust� Amount continued to be held by SC/ARC until
realization of assets & redemption of security
receipts issued against such assets� May invest amount of owned fund in the security
receipts issued by the trust
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�Proper management of business of
borrower
�Sale or lease of a part or whole of business of borrower
�Rescheduling of payment of debts
payable by borrower
�Enforcement of security interest�Settlement of dues payable by borrower
�Taking possession of secured assets
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�Power to take over possession of secured
assets (General)
�
Taking over management of borrower·sbusiness (Special)
�To cut short legal procedures & engage
in whole sale purchase of banks bad
loans�Either sell assets or lease them & utilise
the cash flow
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�Act as an agent for any bank or financialinstitution
�Act as a receiver, if appointed by any court
or tribunal�Act as a manager as in Section 13 (4) (c)�ARC not to undertake function of
securitization & no legal transfer of assets toits ownership, while carrying out functions
�Act merely as the agent of bank/FI & carryout functions as a service-provider
�Act as the Receiver of the Court, if soappointed
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�Government decided to permit ForeignDirect Investment (FDI) in equity capital
�Foreign Investment Promotion Board (FIPB)
to consider applications frompersons/entities eligible to invest in India inequity capital
�Maximum foreign equity shall not exceed49% of the paid up capital
�FDI alone will be permitted, investments byFIIs will not be permitted
�Policy on FDI to be reviewed after two years& of FII investment after one year
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� Ensuring participation of FIIs which would bringin new money & providing tax-exempt statuswould reduce the intermediation costs further
� Banks/FIs need to accelerate the sale of NPAs to
ARCs, thereby converting their illiquid, capitalconsuming NPAs to cash
� ARCs need to provide an early exit to the banksfrom NPAs
� Well functioning of ARCs different from other
businesses� Quality of team & resources available with them� Ability to work with the legal system
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�Must have operational independence &
sufficient authority
�
There should be some kind of fiscalincentives
�Accountability & transparency are also
important
�Cost control occupies important place�There should be a mechanism to review
the working of ARC
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�Debt aggregation
�Sourcing funding from co-investors
�
Working out the acquisition price�Finding a way to speed up recovery
process
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�www.rbi.org.in
�www.arcil.com
�
www.financialexpress.com
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THANK YOU