Asset Reconstruction - The Ideal Way to Curb NPAs
Posted by Shrikant Sharma on April 12th, 2018
With a huge amount of accumulation of Non-Performing Assets (NPA) with the bank, it has become a matter of great concern to get rid of such huge liabilities that cause an impediment in clearing the balance sheet of the bank. In order to curb such NPAs, a dedicated institute called an asset reconstruction company was produced.
The job of Assets Reconstruction Company (ARC) in India is to purchase the assets that are not performing at reasonable rates hereby helping the banks to clean up their balance sheets by getting rid of such NPAs. So how does an ARC gets funded to buy such assets? The most popular way of securing funds is through security receipts. So, as per the SARFAESI Act, security receipt is issued by an ARC to the Quality Institutional Buyer (QIB) for a particular purchase in sight. This security reciept hereby gives the Quality Institutional Buyer the title and right in the asset bought by ARC.
When Asset Reconstruction Company in India was taking the initial steps into the expansion, the conversion rates of the NPAs were negligible. With the passing years, it caught momentum as a lot of NPAs were been bought by the Asset Reconstruction Company. The current scenario is that the market of acquiring NPAs by ARC are relatively constant.
There are complex accounting requirements that are taken up by asset reconstruction company. This is done so because Arcs buy debts through various different parties. However, it should be noted that these debts that are not be pooled as one body. This results in separate accounts being created for several debts that have been purchased. This raises the complexity of the accounting tasks. The whole process of carrying out this tasks is to ensure the interests of the investors investing money are safeguarded.
JMFL is one such institute based out of Mumbai, who cater to such NPAs. Their experts in the field have a sound understanding and keen eyesight in dealing with such matters. The experts are highly qualified who undertake such sensitive tasks with utmost precision in order to ensure that the investor's interests are not jeopardized.