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ARC means a Securitisation company(SC) or Reconstruction company(RC) registered under the Companies Act, 1956 and which has obtained a certificate of registration from Reserve Bank of India to commence or carry on the business of securitisation or assets reconstruction under section 3 of the SARFAESI Act, 2002 . A SC or RC apart from undertaking securitisation and reconstruction activities may also carryout the following functions provided under section 10 of the Act :
The financial sector has been one of the key drivers in India’s efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices , there were certain areas in which the banking and financial sectors did not have a level playing field as compared to other participants in the financial markets in the world. There were no legal provision for facilitating securitisation of financial assets of banks and financial institutions.
Further, unlike international banks, the banks and financial institutions in India did not have powers to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This had resulted in slow pace of recovery of defaulting loans and mounting levels of nonperforming assets of banks and financial institutions. Narasimhan Committee I and II and Andhyarujina Committees, interalia, have suggested enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the courts. Acting on these suggestions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Oridance,2002 was promulgated on 21st June,2002 and enacted by parliament in the same year to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected there with or incidental thereto. The provisons of the Act would enable banks and financial institutions to realize long term assets, manage problems of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction.
Any SC or RC may acquire financial assets of any bank or financial institution
The purchase consideration for effecting such a transfer includes :
Banks/financial institutions may enter into an agreement with SC/RC to share, in an agreed proportion, any surplus realised by SC/RC on resolution of the concerned asset.
ARCs will be holding Financial Assets (FAs) in a Fund floated by the Trust for the benefit of the investors (Qualified Institutional Buyers - QIBs). The Trust will float schemes for acquisition of Financial Assets (FAs) and issue Security Receipts (SRs) to the investors who shall subscribe to the same by making the payment for it. Such monies received from investors shall be utilized towards payment of purchase consideration for financial assets to the selling Banks / FIs.
Since the selling Banks/ FIs shall also be the initial subscribers to the SRs as QIBs, the SRs subscribed to by them shall represent the proportion of their share in the aggregate principal outstanding loan amount provided all criteria such as security profile remaining the same.
Securitisation is the process of conversion of existing assets or future cash flows into marketable securities. In other words, securitisation deals with the conversion of assets which are not marketable into marketable ones.
Securitisation helps banks to sell off their bad loans (NPAs or non performing assets) to asset reconstruction companies (ARCs). ARCs, act as debt aggregators and are engaged in acquiring bad loans from the banks at a discounted price, thereby helping banks to focus on core activities.
On acquiring bad loans ARCs restructure them and sell them to other investors as SRs, thereby freeing the banking system to focus on normal banking activities.
Security Receipt means a receipt or other security, issued by a securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right title or interest in the financial asset involved in securitisation. SRs shall be redeemed only out of realization from financial assets held under the Trust and carry no fixed returns. SRs may also be sold in the secondary market.
The expression 'Financial Asset' has been defined in wide terms to include debt or receivables or part thereof whether secured or unsecured any right or interest in any security (mortgage, pledge or hypothecation or any other charge) or any beneficial interest as property or such debt or receivable whether existing, future, accruing, conditional or contingent.
As per Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 the total holding by a single FII in each tranche of scheme of SRs should not exceed 10% of the issue and the total holdings of all FIIs put together should not exceed 49% of the paid up value of each tranche of scheme of SRs issued by the ARC.
ARC will function like a Mutual Fund. It will transfer the acquired assets to one or more trusts [set up u/s 7(1) and 7(2) of SARFAESI Act, 2002] at the price at which the financial assets were acquired from the originator (Banks/FIs).
The trusts shall issue Security Receipts to Qualified Institutional Buyers [as defined u/s 2(u) of SARFAESI Act, 2002].
The trusteeship of such trusts shall vest with the ARC.
ARC will get only management fee from the trusts. Any upside in between acquired price and realized price will be shared with the beneficiaries of the trusts (Banks/FIs) and ARC. Any downside in between acquired price and realized price will be borne by the beneficiaries of the trusts (Banks/FIs).
ARCs can acquire assets either through participation in auction of NPAs conducted by the banks/financial institutions or through bilateral negotiations.
In case of auctions, the following process is commonly adopted
The RBI guidelines to Banks/ FIs on sale of assets to ARC state that Banks/ FIs, which propose to sell their financial assets to Asset Reconstruction Company (ARC) should ensure that the sale is conducted in a prudent manner in accordance with a policy approved by the Board. The Board shall lay down policies and guidelines covering, inter- alia :
As provided in Section 4 d (ii) of the RBI guidelines to Banks/FIs on sale of financial assets to SC/RC, in the case of consortium / multiple banking arrangements, if 75% (by value) of the Banks / FIs decide to accept the offer of the Asset Reconstruction Company (ARC), the remaining Banks / FIs will be obligated to accept the offer by the ARC..
Under the SARAEFSI Act, 2002 an Asset Reconstruction Company (ARC) may acquire an interest in financial assets of any Bank / FI. The Bank / FI may, if it considers appropriate, give a notice of acquisition of financial assets by ARC to the concerned obligor. The borrower cannot oppose this move of the Banks / FIs.
SC/RCs can deploy their funds for undertaking restructuring of acquired loan account with the sole purpose of realizing their dues
The essential objective of both the Corporate Debt Restructuring (CDR) and ARC is the same-Unlocking value from non-performing / distress assets. Hence, they can be seen as complementary resolution efforts in addressing the distressed asset problem.
The ARC route has the advantage of taking the asset off the Banks' books and creating a secondary market for it, thereby enhancing the value potential.
ARC is focused towards resolution rather than the reschedulement of debt. Debt aggregation by ARC will enable single point responsibility and ensure speedy implementation of resolution strategy based on sustainable level of debt within a reasonable timeframe.
Any asset movable or immovable, given as a security whether by way of creating a mortgage, hypothecation or creating a security interest in any other form are covered under the SARFAESI action. However, provisions of the act are not applicable in certain cases as specified under section 31 of the Act.
The transfer of Financial Assets (FAs) will be effected by way of an agreement between the Bank / FI and ARC. The transfer as contemplated under the SARFAESI Act, 2002 amounts to assignment of debt in law.
As the process involves transfer/assignment of mortgage debts and the same will attract stamp duty as "Conveyance" on ad- valorem under the corresponding stamp laws of the states where the mortgaged asset is located. The duty in various states is very high ranging from 4% to 10%. In few states concessions are available as the same is kept under a special article as "assignment of debt with or without underlying securities" and is capped at maximum of Rs.1.00 lakh in the states of Andhra Pradesh, Bihar, Chhattisgarh, Delhi, Gujarat, Karnataka ,Maharashtra ,Tamil Nadu, Uttar Pradesh and West Bengal.
No. Any NPA may be transferred to ARC irrespective of the action taken by the Bank / FI under the SARFAESI Act, 2002 or otherwise.
Any acquisition under the SARFAESI Act, 2002 does not require any covenants in the loan documents to enable the transfer.
The SARFAESI Act, 2002 stipulates that once the assets are acquired by any Securitisation/Asset Reconstruction Company, no further reference can be made by the Borrower Company to BIFR. Pending reference before BIFR shall abate only when any measure is taken by ARC under Section - 13(4) of the SARFAESI Act, 2002.
Although insolvency laws recognize the rights of secured creditors to remain outside insolvency or winding up proceedings and realize the securities till the enactment of the SARFAESI Act, such reights could be exercised only with the intervention of the courts. With the powers now conferred on secured creditors , the rights of secured creditors can be exercised without intervention of courts. Definition of “Secured Creditor” under SARFAESI Act is restricted to the Banks and Financial Institutions.
CIN No . :
U67120TG2007PLC053327
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Sri. Koteswara Rao SSR is a Fellow Member of the Institute of Chartered Accountants of India and a senior partner in M/s. Brahmayya & Co. Chartered Accountants, Hyderabad.
He served as a Director on the Boards of APIDC and APSFC for over 20 years. He is a former member of the Regional Council and Central Council of The Institute of Chartered Accountants of India; former President of the Federation of Andhra Pradesh Chambers of Commerce & Industry.He is inducted on the Board of the Company in October, 2020.
Sri. P. Rama Krishna Chowdary is former General Manager of Union Bank of India and served the bank for 39 years. Mr.Chowdary worked as Chief Representative of the Bank in USA for five years and also as Zonal Manager, for two years. Before retirement he headed the Customer Acquisition Group and Financial Inclusion division for three years. He joined PARAS as Vice President in September, 2023.
Sri M. Siva Rama Vara Prasad is the promoter of the company. He is a Metallurgical Engineer coming from an agriculture family. He started his career acquiring sick units and turning them into successful ventures. Later he moved to West Africa, where he acquired sick cement and steel companies and transformed them into viable and profitable ventures. Sri Prasad is the chief promoter and Chairperson of Prasaditya Group with headquarters in Hyderabad. He promoted over 35 companies operating in 16 countries across the globe. He has interest in diversified sectors like cement, steel, power generation, chemicals, automobiles, international trading, software development, real estate, film studio, apparels and garments, etc. providing employment to over 20000 people in India and abroad.
Sri Prasad was awarded “The Most Successful and Innovative Entrepreneur” for the African Region in the year 1996 by UNIDO. He was conferred two awards “Pioneer in Skilling Africa 2017” and “Entrepreneur of the Year Award 2017” by the Associated Chamber of Commerce & Industry of India (Assocham) for being a pioneer in IndiaAfrica trade.
On his return to India, he joined M/s.Haldia Petrochemicals Ltd. as Managing Director. He also occupied Board positions in M/s.Gokuldas Exports Ltd., Times of India Group and Black Stone Group. Sri. Richard B Saldanha is known for his operational excellence. He is also a member of the Court of Governors of the Administrative Staff College of India, Hyderabad.
Dr. N. Ramesh Kumar is an Indian Administrative Service Officer (Retired). He belongs to 1982 Batch of IAS. He held various positions as Dist Collector, Secretary, Principal Secretary, Principal & Special Chief Secretary to Governor of AP & Telangana, State Election Commissioner of Andhra Pradesh. He also held the position of Finance Secretary to Govt of Andhra Pradesh.Recently, Dr. Ramesh Kumar was appointed as the new Director-General of Administrative Staff College of India (ASCI), Hyderabad.
Sri. Mallikarjuna is former General Manager of Andhra Bank, headed the recovery and legal departments in Andhra Bank. Post retirement in 2017, he was selected and posted as Presiding Officer, Debts Recovery Tribunal I in Hyderabad for four years. He is registered as Insolvency Professional with IBBI. He joined PARAS as Vice President in April, 2022.
Ms. K. Sujatha Rao is an officer of Indian Administrative Service (Retired). She held important positions both in the Government of Andhra Pradesh and Government of India.
As Commissioner Institutional Finance, she was closely associated with financial aspects of several key projects in irrigation, education, health etc. She retired as Secretary, Ministry of Health and Family Welfare, Government of India in 2010.She represented India on the Board of the Global Fund, WHO, UNAIDS, to name a few. She is actively associated with several voluntary organizations working for the welfare of women and children particularly in rural areas.
Ms. Sujatha Rao is on the Board of the Company as Independent Director from 2015.
Sri. Ramakrishna Prasad is a legal professional with experience of four years as a practicing Advocate. Later he worked as a Law Officer in senior cadres in Banks for over 20 years. Before joining the company in 2016 he was with Kotak Mahindra Bank Limited as Zonal Head (Recovery).
Sri. Ranga Rao is a Post graduate in Management and also a CAIIB. Mr. Rao joined Andhra Bank as a Probationary Officer in 1978 and served the bank for nearly 30 years. Mr. Rao is associated with PARAS since 2012 and is now heading Acquisitions, Finance and Operations departments.
Sri. M. S. Hussain worked with Vysya Bank and Development Credit Bank in their specialised departments heading recovery in New Delhi, Mumbai and Hyderabad. He worked as Vice President in PARAS from 2008 to 2016. This is his second tenure in the Company from October, 2024.