Note on Asset Reconstruction Companies (ARC).

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Note on Asset Reconstruction Companies (ARC).

A) INTRODUCTION:

An asset reconstruction company’s primary goal is to manage and to make profitable those assets which have been underperforming or become formally classified as NPA’s belonging to companies who have been unable to generate sufficient timely revenue to service their outstanding obligations.
B) FOREMOST REQUIREMENT:

An ARCshall have a minimum net owned fund shall be Rs.2 crores and it cannot commence or carryon its business without obtaining a certificate from RBI.
C) REQUIREMENT AS TO CAPITAL ADEQUACY:

Every Securitisation Company or Reconstruction Company shall maintain, on an ongoing basis, a capital adequacy ratio, which shall not be less than fifteen percent of its total risk weighted assets. The risk-weighted assets shall be calculated as the weighted aggregate of on balance sheet and off balance sheet items as prescribed by the department.
D) PERMISSIBLE BUSINESS:

• A Securitisation Company or Reconstruction Company shall commence/undertake only the securitisation and asset reconstruction activities and the functions provided for in Section 10 of the Act.
• A Securitisation Company or Reconstruction Company shall not raise monies by way of deposit.
E) ISSUE OF SECURITY RECEIPTS:

A Securitisation Company or Reconstruction Company shall give effect to the provisions of Sections 7(1) and (2) of the Act through one or more trusts set up exclusively for the purpose. The Securitisation Company or Reconstruction Company shall transfer the assets to the said trusts at the price at which those were acquired from the originator ;

• The trusts shall issue Security Receipts only to qualified institutional buyers; and hold and administer the financial assets for the benefit of the qualified institutional buyers;
• The trusteeship of such trusts shall vest with the Securitisation Company or Reconstruction Company;
• A Securitisation Company or Reconstruction Company proposing to issue Security Receipts, shall, prior to such an issue, formulate a policy, duly approved by the Board of Directors, providing for issue of security receipts under each scheme formulated by the trust ;
• The policy referred to in sub-paragraph (iv) above shall provide that the security receipts issued would be transferable/assignable only in favour of other qualified institutional buyers.
F) Documents to be submitted to RBI by NBFCs for obtaining certificate and Registration from RBI

An indicative list of documents/information to be furnished along with the application. All
documents/information is to be submitted in duplicate.

1. Minimum NOF requirement Rs. 2 Crores.

2. Annexure I (Identification particulars of the company ) to be submitted duly signed by the director/Authorized signatory

3. Annex II (Statement of Owned Funds) to be submitted duly signed by the director/Authorized signatory and certified by the statutory auditors.

4. Annex III (Information about the management) to be separately filled up for each director.

5. Annexure IV (Information about the sponsor / s) to be separately filled up for each sponsor.

6. Annexure V (Information about related parities as defined in the Accounting Standards
and Guidance Notes of ICAI).

7. Certified copy of up-to-date Memorandum and Articles of Association of the Company (evidencing therein that the company has been formed for the purpose of undertaking securitisation / asset reconstruction business only).

8. A Certified copy each of Certificate of Incorporation and Certificate of Commencement of Business (in case of public Ltd. companies).

9. Board Resolution specifically approving the submission of the application and its contents and authorizing signatory.

10. Board Resolution to the effect that the company has not accepted any deposit ( as defined in Section 45-I(bb) of the Reserve Bank of India Act, 1934)/ deposit accepted will be repaid in terms of the contract and the company has not defaulted in repayment of deposits / interest thereon so far.

11. Board resolution stating whether or not the directors of the company have adequate professional experience in matters related to finance, securitisation and reconstruction

12. Board resolution stating that none of the directors are disqualified to be appointed as directors as per the provisions of the Companies Act, 2013.

13. Board resolution stating that the company, if carrying on any other business other than the business of securitisation /asset reconstruction as defined in the Act on or before the date of application, will cease to carry on any such business by June 20,2003 if the company is granted registration by RBI ( carrying out the business of securitisation, which does not fall under the definition of Securitisation as in Section 2(I)za of the Act, will fall under ‘other activity’ ).

14. A certified copy of Board of Directors Resolution and Auditor’s Certificate
(in original)to the effect that;
the company has not incurred losses in any of the three preceding financial years; (for existing companies only).

15. A certified copy of Board of Directors Resolution and Auditor’s Certificate
(in original) to the effect that;
the company has not engaged (for existing companies only) / will not engage in any business other than securitisation and asset reconstruction.

16. A certified copy of Board of Directors Resolution and Auditor’s Certificate
(in original) to the effect that;
any of the sponsors is not a holding company of the securitisation company or reconstruction company, or does not otherwise hold any controlling interest in such securitisation company or reconstruction company.

17. A certified copy of Board of Directors Resolution and Auditor’s Certificate
(in original) to the effect that the Board of Directors of the company does not consist of more than half of its total number of directors who are either nominees of any sponsor or associated in any manner with the sponsor or any of its subsidiaries

18. The Board of Directors should, by means of a report, state that the company has made adequate arrangements for realisation of the financial assets acquired for the purpose of securitisation / asset reconstruction and that it shall be able to service its obligations on respective due dates to the qualified institutional buyers or other persons.

19. Last three years Audited balance sheet along with directors & auditors report.

20. Business plan of company for the next three years giving details of its:

 thrust of business;
 amount of Financial Assets proposed to be acquired;
 market segment;
 projection of investments and income;
 statement of Financial Assets and Liabilities; and
 organisational Structure
G) REGISTRATION WITH GOVERNMENT AUTHORITY:
As per rules and regulations applicable to SecuritisationCompanies registration.
H) PLACE OF RENDERING SERVICES:
The place of rendering services generally shall be our office situated at 2 nd Floor, 496B, Om Apartment, Near KCC Classes, KasbaPeth, Pune – 411 011.
I) PROFESSIONAL FEES:

Professional Fees for above mentioned assignment shall be INR 300,000/- (INR Three Lakhs Only) plus Service Tax. Out of pocket expenses will be INR 100,000/- (INR One Lakh Only).

For us clients are important and we are interested in keeping long term relationship with client’s always.

Thanking you and assuring best professional services;

I remain,

Yours faithfully

Pramodkumar R. Ladda
Company Secretary

Thanks & with warm regards !

For, CS Pramodkumar R. Ladda
Company Secretary

Note on Asset Reconstruction Companies (ARC).

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