ARCs spot opportunity in written-off accounts

ARC executives find written-off assets particularly appealing as the number of sizeable bad loans awaiting recovery have dipped, thanks in part to banks’ persistent corrective measures, including selective targeting of corporate borrowers.

Asset reconstruction companies (ARCs) are capitalizing on the opportunity to acquire written-off loans, given the substantial pool of such assets available with lenders, and the government’s concerted efforts to recover these loans, according to industry insiders.

This is attributed to the banks’ consistent efforts in persuading the borrowers and making serious efforts in recovery of over-dues including selective targeting of Corporate Borrowers.

How ARCs acquire the Financial Assets?

RBI provides the following guidelines on ARC frame work and acquisition of assets:

1. 1. Every ARC shall frame with the approval of its Board of Directors, a ‘Financial Asset Acquisition Policy’, within 90 days of grant of Certificate of Registration, which shall clearly lay down the policies and guidelines covering, inter alia,
      1. norms and procedure for acquisition either on its own books or directly in the books of the trust;
      2. types and the desirable profile of the assets;
      3. valuation procedure ensuring that the assets acquired have realisable value which is capable of being reasonably estimated and independently valued;
      4. in the case of financial assets acquired for asset reconstruction, the broad parameters for formulation of plans for their realisation.
   2. The Board of Directors may delegate powers to a committee comprising any director and/ or any functionaries of the ARC for taking decisions on proposals for acquisition of financial assets;
   3. Deviation from the policy should be made only with the approval of the Board of Directors.
   4. Before bidding for the stressed assets, ARCs may seek from the auctioning banks adequate time, not less than two weeks, to conduct a meaningful due diligence of the account by verifying the underlying assets.

Similarly guidelines are also issued on the following:

• • Obtaining permission to acquire financial assets from other ARCs and acquisition of acquisition of financial assets by ARCs from sponsors and lenders.
  • Rescheduling of assets
  • Enforcement of Security Interest
  • Settlement of dues payable by the borrower
  • Sale or lease of a part or whole of the borrower’s business
  • Conversion of a portion of the debt into equity of a borrower company
  • Procedure for takeover process
  • Requirement of Capital Adequacy
  • Restructuring of supporting finance
  • Reporting