NPA Resolution & Asset Reconstruction
Comprehensive solutions for managing and recovering non-performing assets through specialized Asset Reconstruction Companies
Rising NPA Concerns in India
The alarming rise of Non-Performing Assets (NPAs) in both public and private sector banks has been a major concern. The COVID-19 pandemic has further exacerbated this problem, with RBI projecting that banks’ gross NPAs may rise to 13.5% by September 2021 from 7.5% in September 2020.
What is an Asset Reconstruction Company (ARC)?
ARCs are specialized financial institutions registered with the RBI under the SARFAESI Act, 2002.
They are designed to act as a supportive system for stressed asset management with greater emphasis on asset reconstruction rather than asset stripping.
Registered with RBI
Under Section 3 of the SARFAESI Act, 2002 for carrying on the business of asset reconstruction or securitization.
ARC Core Functions
Asset Reconstruction
Acquire rights or interests in financial assets for realization
Securitization
Acquire financial assets by raising funds from Qualified Buyers
Recovery Management
Take over NPAs, manage them, and recover money over time
NPA Recovery Mechanism by ARCs
NPAs are loans or advances where principal or interest payments remain overdue for 90 days. ARCs follow a structured process for recovery:
1. Acquisition of Assets
ARCs acquire NPAs from banks and FIs through auctions as bilateral deals with sponsor banks are prohibited by RBI guidelines.
2. Scheme Formulation
After acquisition, ARCs formulate schemes for inviting subscription to Security Receipts (SRs) by Qualified Institutional Buyers.
3. Resolution Planning
ARCs prepare a resolution plan within six months from the date of acquisition using various methods for asset resolution.
ARC Resolution Methods
ARCs employ various strategies to resolve acquired NPAs and maximize recovery
Rescheduling of Debt
Restructuring payment terms to facilitate borrower repayment
Enforcement of Security
Exercising rights over collateral securities
Settlement of Dues
Negotiating settlements with borrowers
Taking Possession
Acquiring physical control of secured assets
Sale of Business
Selling the business as a going concern
Strategic Initiatives
Implementing turnaround strategies for value creation
NPA Account Acquisition
A secure, compliant process to acquire Non-Performing Asset (NPA) accounts — with verification, risk scoring and documentation checks built for lending and recovery teams.
Automated Identification
Match accounts across datasets, validate borrower identity and flag duplicates.
Risk Scoring & Prioritization
Proprietary scoring to prioritize high-probability recovery accounts for focused action.
Document Validation
Automated checks for account documents, timestamps and legally-required proofs.
Benefits of ARC Resolution
Cleaner Balance Sheets
Banks can remove NPAs from their books, improving financial health and compliance ratios.
Specialized Expertise
ARCs bring specialized skills in recovery and resolution that banks may lack.
Focus on Core Operations
Banks can focus on their primary lending business rather than recovery efforts.
Better Recovery Rates
ARCs often achieve higher recovery values through specialized approaches.
Economic Value Preservation
Reconstruction rather than liquidation helps preserve economic value and jobs.
Investor Opportunities
Creates investment opportunities for qualified buyers through security receipts.
Need Professional NPA Resolution Services?
Our team of experts specializes in helping financial institutions manage and resolve NPAs efficiently.
