ASSETS RECONSTRUCTION COMPANY (ARC)

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SARFAESI Act, Securitisation

The main business of ARC is securitization or reconstruction of financial assets (FA) i.e. loan standing in Bank or Financial Institution (FI) Books as Non-Performing Asset (NPA). On operational level, there is no difference between securitization or reconstruction. 

Securitization of FA involves an originator, whose FA such as loans and receivables will be converted into security receipts (SR), and a trust/SPV, credit rating agency, original borrower and investor of SR. 

SECURITIZATION PROCESS


The originator lifts NPA accounts from its balance sheet and sells [as a true sell wherein both the legal and the beneficial interest are transferred to ARC in such NPA accounts] it to ARC by way of assignment of debt (AoD) which in turn opens SPV (in the form of Trust) and passes such NPA accounts into such SPV. Such SPV converts them into SR and issued to the investors (Qualified Buyer). ARC must be one of such investors in that transaction and always remain invested upto 15%.

ARC in such a transaction acts like a collecting agent and charges a management fee. ARC enables banks and FIs to realize long-term assets, manage problems of liquidity and improve the recovery measures.


Location: Delhi, India

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