What Is the Meaning of Asset Reconstruction Company, and What Does it Stands For?

Meaning of Asset Reconstruction Company

Since everyone is curious about the meaning of Asset Reconstruction Company, we have made this guide to let you understand it. The Asset Reconstruction Company is a specialized financial institution that works to resolve distressed assets, restructure them and eventually transfer them to a new owner. It is a unique institution focusing on long-term sustainability by providing solutions for both the borrower and the lender.

As such, it stands for a bridge between the creditor and the debtor, playing an essential role in the efficient functioning of the financial system. Since it benefits any financial institution, you can learn more about the meaning of Asset Reconstruction Company, its objectives and goals to achieve, its services, and many more. If you are prepared to know about it, you should read this guide for more information. 

What Is the Meaning of Asset Reconstruction Company?

You know the purpose of this guide is to let you know the meaning of Asset Reconstruction Company, and as it is, we are about to tell you the meaning of Asset Reconstruction Company from now on. 

The Asset Reconstruction Company is a unique financial institution that helps the bank and other financial institutions by buying their debtors with a valid agreement to recover the debts by itself. This financial institution was formed as a government project of India to give life to the investment cycle of India. Even though this is called the Asset Reconstruction Company, the short form of it is ARC India. 

Since this Asset Reconstruction Company was established in India, it has been a great help for all the financial institutions and other banks in a lost state. This Asset Reconstruction Company was established by the Recapitalization and Financial Services Industry Development Act 2002. 

The main goal of this Asset Reconstruction Company is to manage and create profits from the assets of the banks, financial situations, insurance companies, or other financial institutes known as underperforming and non-profitable. 

As this Asset Reconstruction Company does an excellent part for companies in a non-profitable state to relieve them from financial loss stress, you should learn more about it to understand its objectives, advantages, and other services too. Now that you learned about the meaning of Asset Reconstruction Company, we will teach you about ARC India’s objectives. 

Objectives of Asset Reconstruction Company

From above, you learned about the meaning of Asset Reconstruction Company, and now you will learn about the objectives of Asset Reconstruction Company India. With the knowledge of the purposes of this ARC India, you can expand your understanding of how things will flow here.

  • Since this ARC in banking is established to revive the investment cycle of India, its main objective is to generate cash flow to repay the debt and interest. 
  • Promote new things and concepts for financial markets to give opportunities for broken financial institutes. 
  • Innovate new techniques, systems, and instruments for credit improvement and risk management. 
  • Promote higher-grade financial assets to improve the security of the financial market. 
  • Improve the economic and operational efficiency of all financial institutions and organizations. 

These are the main objectives of the Asset Reconstruction Company, and there will be more objectives and goals that this ARC can achieve. 

Services of Asset Reconstruction Company

There are different services provided by this Asset Reconstruction Company, which can be different from one ARC in banking to the other Asset Reconstruction Company. So from this guide, you will learn about the commonly provided services by Asset Reconstruction Companies. 

  • Reconstruction and securitization of financial assets. 
  • Provide loans for the shares and fixed deposits.
  • Analyzing the finance of borrowers who have the potential to restructure the debt that has to be paid by the debtors to provide advice on their finance. 
  • Trade Finance.
  • Provide project advisory services for the promoters who promote projects on debt capital and other financial activities. 
  • Act as a consultant on the security of the newly invented debt instruments and some other issues regarding the security and trust of each financial activity. 
  • Act on increasing the return benefits of each fund by investing the extra amount of the best investment methods. 
  • Provide cash management services, including collecting cash, investing in the best options that give the best surplus money, and many more. 

Methods of Gathering Assets in Asset Reconstruction Companies

Asset Reconstruction Companies follow many methods to gather funds. Still, here from this guide about the meaning of an Asset Reconstruction Company and what it stands for, we will explain the two main methods that the ARC in banking will supply assets for them. 

Raise Funds

The first type of asset-collecting method for ARCs is fundraising. These ARCs have the permission to raise funds needed to purchase debts from qualified institutional buyers, which we can call shortly as QIBs.

And also, if the ARCs cannot follow the above method to raise funds, they can sell equity funds or promote various debt instruments to gather the assets needed. Since these are very risky companies, these are only allowed for qualified institutional buyers or QIBs who have the skills to manage a significant loss independently. 

Partnership

The partnership is the next method that these Asset Reconstruction Companies acquire assets needed for them. The ARCs cannot purchase debts directly from banks or other financial institutes.

But, banks and other financial institutes, such as insurance companies, etc. will hire Asset Reconstruction Companies to help them to recover the debt. In such cases, both the financial institution and the ARC will come into a specific agreement agreeing to share the revenue between them in a pre-defined profit percentage. 

Process of Asset Reconstruction Company

As you have learned many things, including the meaning of Asset Reconstruction Company, the final and the most important thing to learn is the process of ARC in banking. The steps below are in the correct order from step one to the last.

  • Borrowers take financial help from financial institutions. 
  • Then, the borrowers supply financial security for the financial institutions. 
  • These assets will be classified as non-performing assets, and then they will be transferred to reconstruction companies. 
  • Then the QIBs can purchase these assets with undivided interest. 

Conclusion

So, thanks to this guide, you have understood the meaning of Asset Reconstruction Company and what it stands for. Not only that, you have identified the services provided by these companies along with the main objectives that they like to achieve through establishing these ARCs. So, there is no doubt that you have a good comprehension of the meaning of Asset Reconstruction Company. 

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