Assets Reconstruction Company Registration

Are you a business owner in India struggling with bad loans and non-performing assets? If so, have you considered registering with an Assets Reconstruction Company (ARC)? An ARC is a specialized financial institution authorized by the Reserve Bank of India to acquire and manage distressed assets, taking over the loans and collaterals of borrowers who have defaulted. The process of registering with an ARC in India can be intricate and time-consuming, but it is worth exploring if you want to take control of your business’s financial future. In this blog post, we will explore the registration process for an ARC in India and shed light on why it may be an essential step for businesses in distress.

1. What is an Asset Reconstruction Company?

An asset reconstruction company, in India, is a specialized entity that purchases bad debts and financial assets from a bank or other financial institution. By doing so, this company takes on the responsibility of managing and recovering loans and debts. To set up an asset reconstruction company, there are specific legal and regulatory requirements that must be met. These include end-to-end liaising with authorities for registration, legal and regulatory compliance, and thorough documentation. Once these requirements are met, the Reserve Bank of India (RBI) will verify the company’s records and inspect its books to confirm financial stability. If approved, the RBI will grant a certificate of registration for the asset reconstruction company.

As an applicant, you must prepare various documents for submission to the RBI, including the certificate of incorporation of the company, memorandum of association and articles of association, various resolutions, information about the directors and management of the company, and audits and balance sheets. Being detailed and thorough in your preparation is crucial for ensuring that the application process goes smoothly. It is also important to work with a reputable and efficient advisory company, such as Enterslice, which can guide you through the process and use technology to streamline the process.

In summary, starting an asset reconstruction company in India requires fulfilling specific legal and regulatory requirements and preparing thorough documentation. With the help of a trusted partner, you can navigate the process and ensure your company is well-equipped to take on the responsibility of managing and recovering bad loans and debts. 

2. Procedure for Registration of an ARC

If you’re considering starting an Asset Reconstruction Company (ARC) in India, you’ll first need to undergo a registration procedure. The Reserve Bank of India (RBI) is the regulatory authority responsible for granting ARC registration certificates. To initiate the process, prepare the application in the required form and submit it along with all necessary documentation to the RBI. Upon receiving the documents, the RBI will inspect your company’s books and records to ensure it is financially capable of carrying out all activities necessary for an ARC. If all requirements are met and there are no concerns or issues with the application, the RBI will grant a certificate of registration for your ARC. If the conditions for registration are not met, the RBI will reject the application and provide reasons why it cannot be approved. 

3. Legal and Regulatory Requirements for an ARC

To start an Asset Reconstruction Company (ARC) in India, there are legal and regulatory requirements that need to be met. One such requirement is that the company must be registered under the Companies Act 2013, and it must also be registered with the Reserve Bank of India (RBI) by the provisions of Section 3 of the SARFAESI Act. In addition to registration, an ARC must comply with prudential norms specified by the RBI. These norms are put in place to ensure that the company is financially sound and capable of carrying out its activities as required. Meeting these requirements is essential for an ARC to commence or carry on business in asset reconstruction or securitization. 

4. Documents Required for Registration of an ARC

To get registered as an Asset Reconstruction Company (ARC) in India, there are specific documents that you must prepare and submit to the Reserve Bank of India (RBI) for verification. These documents serve as proof that your company is financially capable of assuming responsibilities in recovering loans and bad debts from banks and financial institutions. Some of the documents required for registration of an ARC include a certificate of incorporation, information and profiles related to the sponsors and management of the company, an audited balance sheet and net-owned funds of the company, and detailed information on related party transactions. Once these documents are submitted and verified, the RBI will grant a certificate of registration to the ARC. If there are issues with the application, the RBI will reject it and state the reasons for the rejection. 

5. Eligibility Criteria to Get Asset Reconstruction Company Certificate

To acquire a certificate of registration as an Asset Reconstruction Company (ARC), one should meet certain eligibility criteria. Firstly, for the last three financial years, the company should not incur losses. Secondly, it should have adequate arrangements for securitization and asset reconstruction to retrieve financial assets appropriately. It must also be able to repay qualified buyers or persons on due dates and make periodic returns. The directors of the company must possess ample experience in finance, financial management, securitization, and reconstruction management. No director must have been convicted of any wrongdoing involving moral turpitude. Furthermore, the sponsor of an ARC must be a fit and proper person, adhering to the criteria specified by the Reserve Bank of India. Compliance with the prudential norms laid down by the RBI is also essential. By fulfilling these eligibility criteria, one can speed up the process of obtaining an ARC certificate. 

6. Importance of Net Owned Fund in ARC Registration

When establishing an asset reconstruction company (ARC) in India, the Reserve Bank of India (RBI) has specific requirements that need to be fulfilled. One of the critical conditions for ARC registration is the company having Net Owned Funds (NOF) of at least INR 100 crore or a higher amount as specified by the RBI. The NOF represents the equity capital of the company and must be contributed only in cash, rather than other assets. The RBI considers the NOF as a crucial factor in determining the financial stability of the ARC to perform its operations successfully.

Having a sufficient NOF is vital for ARC registration, as it ensures that the company has the necessary financial resources to purchase bad loans and non-performing assets from banks and financial institutions. It also guarantees that the ARC can manage and maintain these distressed assets in its books until they are realized. Since the ARC’s primary function is to buy distressed assets and perform the recovery process, having an adequate NOF helps to create confidence in the market and attract potential investors. The ARC’s NOF is also related to operational efficiency and helps to meet the various prescribed prudential norms specified by the regulator.

The RBI requires that before granting certification for ARC operations, the applicant must provide extensive documentation and comply with various legal and regulatory requirements. The regulator evaluates the ARC’s financial position, its promoters and management, and the adequacy of its NOF to ensure that the company can sustain its operations. The RBI conducts checks and inspections to verify that the ARC has the necessary resources, capabilities, and experience to manage financial assets effectively. Therefore, meeting the NOF requirement is critical to obtain the RBI’s approval to start operations, making it an essential step in the ARC registration process.

In conclusion, establishing an ARC in India requires meeting several criteria, including having a sufficient Net Owned Fund. Adequate NOF is critical for ensuring financial stability, attracting potential investors, complying with the regulatory norms, and obtaining the RBI’s certification. Therefore, potential applicants for ARC registration should ensure that they have a robust financial foundation, including a sufficient NOF, before beginning the registration process. 

7. Issuing Security Receipts for Funding Requirements

As a financial institution, you may have encountered the need for additional funding to manage or acquire financial assets. One option available to you is to raise funds by issuing security receipts. Under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002, an Asset Reconstruction Company (ARC) is allowed to offer security receipts to Qualified Buyers (QBs).

The QBs can be any financial institution, insurance company, bank, state financial corporation, state industrial development corporation, trustee, or ARC. Additionally, any Non-Institutional Investor category specified by the Reserve Bank of India or any other corporate body specified by SEBI can also become QBs. As long as the financial asset involved in the securitization is non-performing, including non-performing bonds or debentures, it can be acquired by an ARC.

However, even Standard Assets can be purchased by the ARC, which are assets under consortium or multiple banking arrangements, with at least 75% of the asset classified as a non-performing asset in the books of other banks or financial institutions. These banks or financial institutions who are under the consortium or multiple banking arrangements should also agree to the sale of said asset to the ARC.

To ensure proper handling of the borrower’s business, an ARC, with asset reconstruction in mind, can even take over or change the borrower’s management. These actions can be taken within the guidelines set out by the RB.

Once an ARC has acquired the financial assets in question, it can start formulating schemes to raise funds from QBs. The ARC has to keep separate accounts for each such scheme for every financial asset acquired out of investments made by a QB. These funds can be raised through the issuance of security receipts.

These securities can be offered by an ARC to QBs for subscription by the provisions of relevant legislation. Additionally, a scheme to offer security receipts may be like a trust to be managed by the ARC. The ARC shall hold the assets so acquired or the funds raised for acquiring the assets in trust for the benefit of the QBs holding the security receipts, or from whom the funds are raised.

In case of non-realization of the financial assets, the QBs holding security receipts of not less than seventy-five percent of the total value of the security receipts issued under a scheme can call a meeting of all QBs. Every resolution passed in such a meeting shall be binding on the respective ARC. Finally, the qualified buyers shall, at a meeting, follow the same procedure as nearly as possible followed at meetings of the board of directors of the ARC.

Overall, the issuance of security receipts in exchange for funding requirements can be an efficient way for financial institutions to manage or acquire financial assets through the help of specialized entities like ARCs. 

8. RBI Verification Process for ARC Registration

When an Asset Reconstruction Company (ARC) is in India, it is important to follow certain procedures and meet specific requirements. The Reserve Bank of India (RBI) is the regulatory authority that oversees the ARC registration process. Once you have prepared the necessary documentation, submitted it to the RBI, and it has been deemed financially sound, the RBI will issue a certificate of registration. However, this is not the only step involved in the process.

The RBI verification process for ARC registration is thorough and ensures that the company undertaking this specialized financial institution business is suited for the task. RBI inspects the ARC’s books, records, and financial assets to determine if it is eligible to carry out the activity of buying Non-Performing Assets (NPAs) from banks and financial institutions. The RBI also ensures that the ARC has adequate arrangements for securitization or asset reconstruction, can offer quality returns and redeem on respective due dates, and that directors have the necessary finance, management, and securitization experience. The sponsor of the ARC must also meet the criteria for fit and proper persons, and the ARC must comply with prudential norms specified by the RBI.

The RBI verification process is an integral aspect of the ARC registration process. It helps to assess a company’s financial soundness and eligibility to carry out the business of asset reconstruction lawfully. It is essential to ensure that the ARC fulfills all the eligibility criteria set by the RBI as any failure to fulfill them may lead to the rejection of the application. 

9. Risks of Rejection in ARC Registration

When registering as an Asset Reconstruction Company (ARC) in India, it is important to be aware of the risks of rejection. The Reserve Bank of India (RBI) is the regulatory authority responsible for ARC registration and will carry out a thorough inspection of the company’s books and records. The RBI will only grant a certificate of registration if the company meets all of the legal and regulatory requirements for an ARC. If any of the conditions related to ARC registration are not fulfilled, the RBI may reject the application and state the reasons for doing so. Therefore, it is essential to ensure that all the necessary documents are prepared and submitted accurately and promptly. Mistakes or inaccuracies in the application process could lead to rejection and may incur additional costs and delays. To minimize the risk of rejection, it is advisable to seek expert advice and guidance throughout the registration process to ensure compliance with all legal and regulatory requirements. 

10. Support Services for Successful ARC Registration

Are you planning to set up an Assets Reconstruction Company (ARC) in India? Registering an ARC involves fulfilling several legal and regulatory requirements that can be quite complex. However, you can make the process hassle-free by availing support services from professional firms. These firms have a team of experienced experts who are well-versed in the ARC registration process and can guide you through every step of the way. They can help you with end-to-end documentation, liaising with authorities, and ensuring compliance with all regulatory requirements. They can also assist you in preparing and submitting all the necessary documents such as the Certificate of Incorporation, Memorandum of Association, and Audited Balance Sheet of the Company. By availing of these services, you can ensure that your ARC registration process is smooth and successful. So, why take the risk of going through this complex process alone when you can have experts assist you every step of the way? 

Advantages of Assets Reconstruction Company Registration in India :

Are you curious about registering an Assets Reconstruction Company (ARC) in India? The process of ARC registration is relatively simple, and there are many advantages to doing so. For example, an ARC handles non-performing assets and finances, which allows banks and other lenders to focus on their core activities. By registering an ARC, you can take advantage of the many opportunities available in the NPA market and aid in the nation’s economic growth.

One major advantage of ARC registration is the ability to invest in distressed assets. Distressed assets are those that are not performing well and may not be generating the expected income. ARCs can purchase these assets from banks and other financial institutions at a discounted price. With the right strategy, these assets can be turned around and sold for a significant profit. By investing in distressed assets, you can help the economy by injecting much-needed funds into struggling companies.

Another benefit of registering an ARC in India is its legal standing. An ARC is granted certain powers under the SARFAESI Act of 2002, which gives it the ability to take control of assets and enforce the recovery of dues from borrowers. This means that ARCs have greater legal power than other lenders and can take the necessary steps to recover funds from non-performing borrowers.

Finally, ARC registration allows individuals to start their businesses in a highly lucrative market. The demand for ARCs has been increasing in India, making it a great opportunity for entrepreneurs to enter the industry. By registering an ARC, you can establish a reputation for your firm and attract more lucrative projects.

Overall, there are many benefits to registering an Assets Reconstruction Company in India. With the ability to invest in distressed assets, legal powers to enforce the recovery of dues, and the opportunity to start a lucrative business, registering an ARC is an excellent choice for those looking to pursue opportunities in India’s economic market.

Disadvantages of Assets Reconstruction Company Registration in India :

If you’re considering registering an Assets Reconstruction Company (ARC) in India, it’s important to be aware of the potential disadvantages. The first hurdle you’ll face is the stringent registration process that requires meeting legal and regulatory requirements. This involves end-to-end liaising with authorities, extensive documentation, and verification of financial records.

Once your ARC is established, you may find it challenging to settle small loans due to recent guidelines requiring an independent advisory committee (IAC) to examine all settlement proposals. The ARC lobby group is advocating for a review of these guidelines, citing difficulties in reviewing and considering each settlement proposal.

Additionally, if all modes of recovery are exhausted and dues remain unpaid, borrowers may have little motivation to settle debts. This can lead to missed opportunities for timely settlement, which could ultimately impact the valuation of the bids put forth by ARCs to pay the banks.

Overall, it’s important to carefully assess the potential drawbacks of ARC registration before proceeding. While ARCs can be valuable for cleaning up bad loans, the registration process and settlement guidelines can be complex and challenging to navigate. 

Frequently Asked Questions about Assets Reconstruction Company Registration in India :

Are you interested in registering an Asset Reconstruction Company (ARC) in India? Here are some frequently asked questions about the process:

What is an ARC?

An ARC is a specialized entity that purchases bad debts and financial assets from financial institutions or banks and takes responsibility for recovery processes for loans and debts.

What are the legal and regulatory requirements for an ARC registration?

An ARC must be registered with the Reserve Bank of India (RBI) and comply with all the necessary legal and regulatory requirements, including documentation, verification, and inspection to ensure financial soundness and capability to carry out ARC activities.

What documents are required for an ARC registration?

Some of the essential documents include the certificate of incorporation, memorandum of association, articles of association, audited balance sheet, certificate of audit, detailed information on related party transactions, and more.

How are assets acquired by ARCs?

ARCs can acquire assets via auctions conducted by banks/financial institutions or bilateral negotiations, and through securitization of financial assets by raising funds from qualified buyers (QBs) through the offer of security receipts (SRs).

What role does an ARC play after acquiring assets?

After acquiring the financial assets, ARCs act as trustees and use their powers under the SARFAESI Act to recover dues from the borrower. ARC acts as trustee and manager of the trust and collects all the relevant files and documents from the borrower.

With these important questions answered you can proceed with registering your ARC and contributing to the smoother functioning of the Indian economy.