Oriental Institute Of Management

Asset Reconstruction in Banking

Presented To:- Prof. Amina Momin

Presented By:-
Pooja Brahmbhatt(9171)
Shilpa Chhatani(9173)
Neha Kaul(9191)
 Why there is need for ARCs in
India???

 In India, level of non-performing assets with

banks and FIs alarmingly high due to:

 Economic condition
 Poor repayment environment
 Government intervention in loan sanctions
 Loan waivers.
The Government of India has proactively taken
steps to clean up bad loans in the banking system.
 What are Non-Performing Assets?

Any asset, including a leased asset, becomes non

performing when it ceases to generate income for the
bank.
Banks classify an account as NPA only if the interest
due and charged during any quarter is not serviced
fully within 90 days from the end of the quarter.
 NPA

Non performing assets further into the following

three categories based for which the asset has
remained non performing and the reliability of the
dues.
The three categories are:
 Substandard Assets
 Doubtful Assets and
 Loss Assets.
 Initiatives taken by Govt &
RBI

Enactment of Securitisation and Reconstruction of

Financial Assets and Enforcement of security interest act
2002(SARFESI ACT) and
issuing of detailed draft guidelines by RBI.

Strengthening of credit appraisal and

monitoring system, risk based supervision.
Institution of Debt Recovery Tribunals and
Corporate Debt Restructuring (CDR) etc.
 How do banks recover their NPAs?

Issue notice to the borrower giving him 60 days to

pay his dues.
If the dues are still not paid, the bank can take
possession of the assets and can also give it on lease
or sell it.
A bank can sell NPA from its books to asset
reconstruction companies .
 Bank sell their NPAs?

A bank can sell NPA from its books to asset

reconstruction companies such as ARCIL only if it
has remained NPA for at least two years.
Such sale can take place only on cash basis.
The purchasing bank has to keep the accounts in its
books at least for a period of 15 months before it is
sold to other banks.
 Asset Reconstruction Company

ARC is a company which is set up with the objective

of :
Taking over distressed assets (Non performing
assets) from banks or financial institutions .
 To reconstruct or re-pack these assets to make those
assets saleable.
 ROLE OF ARC

Purchase the non performing assets from banks and

financial institutions at a discount as high as 75 per
cent of the original value of the loan.
NPAs can be assigned by banks and FIs.
In turn these assets will be reconstructed /re-packed
and then sold in the market in various forms or
recovered through “Securitization and
Reconstruction of Enforcement of Security”.
 Role of ARC(CONT’)

Enables banks and FIs to realize long term assets,

manage problems of liquidity, asset liability
mismatch and improve recovery and 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 and realize the same.
The Act also empowers the RBI to stipulate
guidelines and directions to ARCs.
 Power of ARC

Power to take over possession of secured assets.

Taking over management of borrower's business.

To cut short legal procedures & engage in whole sale

purchase of banks bad loans.

Either sell assets or lease them and utilize the cash

flow
 Advantages of ARC

Centralisation of bad loans in one or a few hands.

The buying of impaired assets from banks or FIs by
ARCs will be able to use their time, energy and funds
for developement of their business.
 Banks do not have to deal with problem clients. It
deals with a larger portfolio, it can mix up good
assets with bad ones and make a sale which is
palatable to buyers.
 Foreign Investments in Asset
Reconstruction Companies

Government decided to permit Foreign Direct

Investment (FDI) in equity capital.
Foreign Investment Promotion Board (FIPB) to
consider applications from persons/entities
eligible to invest in India in equity capital
Maximum foreign equity shall not exceed 49% of
the paid up capital.
FDI alone will be permitted; investments by FIls
will not be permitted.
Policy on FDI to be reviewed after two years and
of FII investment after one year.
 List of ARC in India

Asset Reconstruction Company (India) Ltd, (ARCIL)

Assets Care Enterprise Ltd.,
ASREC (India) Ltd,
Pegasus Assets Reconstruction Pvt. Ltd.
Dhir & Dhir Asset Reconstruction & Securitisation Company Ltd
Reliance Asset Reconstruction Company Ltd.
Pridhvi Asset Reconstruction and Securitisation Company Ltd.
Phoenix ARC Pvt Ltd.
Invent Assets Securitisation & Reconstruction Private Limited
JM Financial Asset Reconstruction Company Limited
India SME Asset Reconstruction Company Limited (ISARC)
THANK YOU