Note on Registration as an Asset Reconstruction Company under the Reserve Bank of India (RBI) Regulations.

• INTRODUCTION:

An Asset Reconstruction Company is a specialized financial institution that buys the NPAs or bad assets from banks and financial institutions so that the latter can clean up their balance sheets. Or in other words, ARCs are in the business of buying bad loans from banks.

ARCs clean up the balance sheets of banks when the latter sells these to the ARCs. This helps banks to concentrate in normal banking activities. Banks rather than going after the defaulters by wasting their time and effort, can sell the bad assets to the ARCs at a mutually agreed value.

• WHAT IS THE NEED FOR NEW ARCS IN INDIA?

Many of the existing Asset Reconstruction Companies do not have sufficient capital to help the banks clear the debt and over the loss faced by NPAs. Thus, setting up new ARCs with proper capitalisation can benefit both the banks and the economic condition of the country.

If ARCs are set and start functioning well, the stressed assets in the banking sector may reduce drastically. This structure will reduce a load of stressed assets on the bank balance sheet and look to resolve these bad debts in a market-led way.

• 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.

• NET OWNED FUNDS REQUIREMENTS:

An ARC shall have a minimum net owned fund shall be Rs.300 crores and it cannot commence or carry on its business without obtaining a Certificate from RBI.

• COMPUTATION OF NET OWNED FUND:

• DOCUMENTS REQUIRED FOR REGISTRATION OF ARC

1. Certified copy of latest MOA & AOA of the company.
2. Certified copy of the certificate of incorporation.
3. Board resolution stating that the company has not accepted any deposit.
4. None of the directors shall be disqualified as per the Companies Act.
5. Detailed information about the sponsor, their profiles, holdings etc.
6. Detailed information about the management, their profiles, their duties, holdings etc.
7. A certified copy of auditor certificate.
8. Balance Sheet of the last 3 years along with director and auditor report.
9. Statement of owned funds.
10. Information about related party transactions
11. Business plan of company for the next three years

• APPLICATION FOR REGISTRATION:

The process requires compliance with the eligibility criteria and submission of comprehensive documentation that covers financial, operational, and governance aspects of the cooperative bank.

• TIME LINE FOR ON TAP LICENSE:

RBI EVALUATION:

RBI will review the application within 2 to 3 months. RBI will focus on key aspects such as the entity’s capital base, governance, and regulatory compliance.

ISSUANCE OF LICENSE:

If the RBI is satisfied with the application and all regulatory criteria are met, the ARC license can be issued in about 3 to 6 months from the date of application submission.

• SCOPE OF WORK:

1. Preparation of Essential Documentation:
   • Drafting and finalizing affidavits, declarations, board and shareholders’ resolutions, and all required supporting documents necessary for Asset Reconstruction Company license application.
   • Ensuring all documents align with the relevant statutory requirements as mandated by the Reserve Bank of India (RBI).
   • CA Certification, necessary Reports and Records etc.
   • Verifying completeness and accuracy of all documents before submission to avoid delays.

1. Filing of Application for ARC License with the RBI:
   • Compiling all essential documentation and filing the complete application for the ARC license with the RBI.
   • Ensuring compliance with RBI’s prescribed guidelines, forms, and timelines.
   • Monitoring the application process and addressing any initial feedback from RBI post-filing.

1. Preparation of Project Reports and Bank Profiles:
   • Developing detailed project reports, company profiles, and necessary documentation to support the application.
   • Ensuring that the content highlights the company’s financial soundness, operational capabilities, and strategic vision for banking operations.
   • Collaborating with relevant departments to gather data and insights required for thorough documentation.

1. Business Plan and Financial Forecasting:
   • Preparing a comprehensive business plan that includes market analysis, competitive strategy, risk assessment, and growth potential.
   • Crafting detailed financial forecasts, including projected balance sheets, income statements, and cash flow projections over a specified period.
   • Incorporating stress testing and sensitivity analysis to demonstrate financial resilience.

1. Guidance on Documentation and Follow-Ups:
   • Providing continuous guidance on document management, ensuring that all paperwork adheres to the latest RBI regulatory standards.
   • Proactively managing follow-ups and maintaining communication with the RBI to track the progress of the application.
   • Addressing additional requests or clarifications promptly to facilitate smoother processing.

1. Preparation and Support for Interviews:
   • Preparing the management team for any interactions or interviews with RBI representatives.
   • Conducting mock interviews to simulate possible questions and scenarios, ensuring that responses reflect preparedness and alignment with RBI expectations.
   • Providing strategic talking points and supporting data for a compelling presentation before the RBI.

1. Representation and Liaison with RBI:
   • Acting as the liaison to represent the company in all discussions and proceedings before the RBI until the Certificate of Authorization is obtained.
   • Presenting key arguments, supporting information, and clarifications required during the review process.
   • Addressing any post-application issues and coordinating with legal or regulatory consultants as needed to resolve them.

• PLACE OF RENDERING SERVICES:

The place of rendering services generally shall be our office situated at Office No. 106, Sr No. 55, Sukhniwas, 15th August Chowk, Mangalwar Peth, Pune – 411011, Maharashtra, India.

• FEES:

Professional fees for the assignment will be as follows:

**Plus GST @ 18% applicable

**Government fees & out of pocket expenses will be at actual.

• TERMS AND CONDITIONS:
• Assigner shall nominate specific person(s) for co-ordination and shall provide relevant data support in concern assignment Mr. Pramod Ladda will be assigned person.
• All the payments should be made in the name of “Ladda Bhutada & Associates”.
• All the disputes shall be subject to Pune Jurisdiction.
• Termination of this contract requires 30 days’ notice.
• GST applicable @18% separately.
• Government Fees and out of pocket expenses will be reimburse at actual.

Thanking you and assuring best professional services.

Sd/-

Pramodkumar R. Ladda

Company Secretary, Insolvency professional

GENERAL FAQ’S RECEIVED FROM CLIENT FOR ASSET RECONSTRUCTION COMPANY

Q1: Do I need to bring 300 Cr NOF to register as an ARC if my company is new?

A1: Yes, as per the regulations by the Reserve Bank of India (RBI), a new ARC needs to have a minimum Net Owned Fund of ₹300 crore to apply for registration. This requirement ensures that the company has sufficient financial strength to undertake asset reconstruction activities effectively.

Q2: Can a bank act as the sponsor to float an ARC for the acquisition of NPA?

A2: Asset Reconstruction Companies (ARCs) are prohibited from acquiring financial assets on a bilateral basis under the following circumstances, regardless of the consideration:

• From a bank or financial institution that sponsors the ARC.
• From a bank or financial institution that either lends to the ARC or subscribes to any fund raised by the ARC.
• From any entity within the ARC’s own group.

However, ARCs are permitted to participate in auctions of financial assets, provided that such auctions are conducted transparently, on an arm’s length basis, and with prices determined by market forces.