15- asset reconstruction in banking

8/8/2019 15- Asset Reconstruction in Banking

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Oriental Institute Of Management

Asset Reconstruction in Banking

Presented To:- Prof. Amina Momin

Presented By:-

Pooja Brahmbhatt(9171)Shilpa Chhatani(9173)

Neha Kaul(9191)


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Why there is need for ARCs inIndia???

In India, level of non-performing assets with

banks and FIs alarmingly high due to:

Economic condition Poor repayment environment

Government intervention in loan sanctions Loan waivers.The Government of India has proactively takensteps to clean up bad loans in the banking system.


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What are Non-Performing Assets?

y Any asset, including a leased asset, becomes nonperforming when it ceases to generate income for the

bank.

y Banks classify an account as NPA only if the interestdue and charged during any quarter is not servicedfully within 90 days from the end of the quarter.


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NPA

y Non performing assets further into the followingthree categories based for which the asset hasremained non performing and the reliability of the

dues.y The three categories are:

Substandard Assets

Doubtful Assets and

Loss Assets.


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Initiatives taken by Govt &RBI

y Enactment of Securitisation and Reconstruction ofFinancial Assets and Enforcement of security

interest act 2002(SARFESI ACT) andissuing of detailed draft guidelines by RBI.

y Strengthening of credit appraisal andmonitoring system, risk based supervision.

y Institution of Debt Recovery Tribunals andCorporate Debt Restructuring (CDR) etc.


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Bank sell their NPAs?

y A bank can sell NPA from its books to assetreconstruction companies such as ARCIL only if ithas remained NPA for at least two years.

y Such sale can take place only on cash basis.y The purchasing bank has to keep the accounts in its

books at least for a period of 15 months before it issold to other banks.


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Asset Reconstruction Company

y ARC is a company which is set up with the objectiveof :

y Taking over distressed assets (Non performing

assets) from banks or financial institutions .y To reconstruct or re-pack these assets to make those

assets saleable.


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ROLE OF ARC

y Purchase the non performing assets from banks andfinancial institutions at a discount as high as 75 percent of the original value of the loan.

y NPAs can be assigned by banks and FIs.y In turn these assets will be reconstructed /re-packed

and then sold in the market in various forms orrecovered through Securitization and

Reconstruction of Enforcement of Security.


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Role of ARC(CONT)

y Enables banks and FIs to realize long term assets,manage problems of liquidity, asset liabilitymismatch and improve recovery and reduce NPLs.

y An ARC may acquire an interest in financial assets ofany bank / FI.

y Enables SC / ARC to take possession of securedassets of borrowers and realize the same.

y The Act also empowers the RBI to stipulateguidelines and directions to ARCs.


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Power of ARC

y Power to take over possession of secured assets.

y Taking over management of borrower's business.

y To cut short legal procedures & engage in whole salepurchase of banks bad loans.

y Either sell assets or lease them and utilize the cashflow


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Advantages of ARC

y Centralisation of bad loans in one or a few hands.

y The buying of impaired assets from banks or FIs byARCs will be able to use their time, energy and funds

for developement of their business.y Banks do not have to deal with problem clients. It

deals with a larger portfolio, it can mix up goodassets with bad ones and make a sale which is

palatable to buyers.


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Foreign Investments in AssetReconstruction Companies

y Government decided to permit Foreign DirectInvestment (FDI) in equity capital.

y Foreign Investment Promotion Board (FIPB) toconsider applications from persons/entities

eligible to invest in India in equity capitaly Maximum foreign equity shall not exceed 49% of

the paid up capital.

y FDI alone will be permitted; investments by FIls

will not be permitted.y Policy on FDI to be reviewed after two years and

of FII investment after one year.


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List of ARC in India

y Asset Reconstruction Company (India) Ltd, (ARCIL)y Assets Care Enterprise Ltd.,y ASREC (India) Ltd,y Pegasus Assets Reconstruction Pvt. Ltd.

y Dhir & Dhir Asset Reconstruction & Securitisation CompanyLtdy Reliance Asset Reconstruction Company Ltd.y Pridhvi Asset Reconstruction and Securitisation Company

Ltd.y

Phoenix ARC Pvt Ltd.y Invent Assets Securitisation & Reconstruction Private Limitedy JM Financial Asset Reconstruction Company Limitedy India SME Asset Reconstruction Company Limited (ISARC)


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THANK YOU

15- asset reconstruction in banking

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