Purchasing NPAs through Asset Reconstruction Company

Posted by rima chauhan on September 23rd, 2019

Non-Performing Assets or NPA are always a matter of concern for a growing economy. With a vast amount of accumulation of Non-Performing Assets (NPA) with the bank, it has become a matter of great interest to get rid of such huge liabilities. At present, the banks are facing a crisis. It is because of the Non-Performing Assets that are stuck on with the banking systems. This has caused an impediment in clearing the balance sheet of the bank. Hence, an urgent need has arisen where such NPA’s could be cleared out to nullify the balance sheet.
 
The primary objective of the Assets Reconstruction Company (ARC) in India is to buy off the assets that have failed and are not performing at reasonable rates. The concept behind buying such a business is to facilitate the banks to reduce the stress on the balance sheets by selling of such NPAs.
 
But how does an ARC get funded to buy such assets? Security receipts is a popular way of securing funding. Through the SARFAESI Act, security receipt is issued by an ARC to the Quality Institutional Buyer (QIB) for corporate debt restructuring. This security receipt empowers the Quality Institutional Buyer the title. It also provides right in the asset bought by an asset reconstruction company in India.
 
When Asset Reconstruction Company India was at its nascent stages of expansion, the conversion rates of the NPAs were negligible. With passage of years, it caught momentum. It resulted in a lot of NPAs which was purchased by the Asset Reconstruction Company. Acquiring of NPAs by ARC are relatively constant.
 
Complex accounting requirements are taken up by an asset reconstruction company as ARCs buys debts through different parties. It should be noted that these debts are not pooled as a single entity. The end result is the 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 these tasks is to ensure the interests of the investors investing money are safeguarded.
 
The advantage of doing so is that the banks and other financial institutes can then concentrate on their day to day production activities. This saves the banks time to follow up with the defaulters as the bad loans have already been sold off at a reasonable rate to the Asset Reconstruction Company.
 
JMFL is one such Asset Reconstruction Company in India who is based out of Mumbai, who cater to such NPAs. For the handling of corporate debt restructuring, the credible and qualified experts have a keen understanding and sharp decision-making capabilities in dealing with such matters. They have an independent branch that provides core and sole expertise in ARC. Their services have been steadfast grounded that helps in yielding maximum benefits out of an NPA and ensures minimum risks for investors alike.

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rima chauhan

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rima chauhan
Joined: March 15th, 2018
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