The Asset Reconstruction Company, also known as ARC, is a securitization company which is formed under the Companies Act of 2013. In compliance with the provisions of Section 3 of the SARFAESI Act, an ARC must be registered with the RBI. Asset Reconstruction Companies (ARCs) are specialist financial firms that purchase bad loans and non-performing assets (NPAs) from banks and financial institutions in order to clean up their balance sheets and increase liquidity.

As the ARC purchases a bank’s or financial institution’s financial assets, it becomes the owner of the asset and assumes the role of the lender bank or financial institution. Following that, it proceeds with the recovery process as if it were the initial lender, in compliance with SARFAESI and other relevant statutes.

Assets Reconstruction Company(ies) must make an application for registration with the Reserve Bank within six months of the Act’s commencement. Any corporation cannot conduct asset rehabilitation or securitization business until it receives a certificate of registration .

The ARC receives funding from

a. In order to meet its funding requirements, the ARC can issue bonds and debentures. However, security receipts are the most significant, and possibly the only, source of funds for the ARCs.

Security Receipts are a receipt or other security provided by a reconstruction company (or, in this case, a securitization company) to any eligible institutional buyer (QIB) for a specific scheme, as specified by the SARFAESI Act. The Security Receipt grants the holder (QIB) a right, title, or interest in the financial asset acquired by the ARC. These ARC-issued SRs are backed up by impaired properties.

ARC is ineligible to collect funds from non-qualified investors (QB). A manufacturing business, for example, might consider investing surplus capital in the ARC.–arc