Pursuant to SARFAESI Act and RBI Guidelines, ARCs acquire financial assets classified as Non-Performing Assets (NPAs) from banks, financial institutions and housing finance companies operating in India (collectively referred to as banks/FIs in this note).
The financial assets are acquired by Arcil by way of setting up trusts and formulating schemes there under pursuant to section 7 of the SARFAESI Act and RBI Guidelines issued to ARCs.
Arcil acts as a trustee and the asset manager of the financial assets acquired in the trusts from Banks / Financial Institutions.
The funds for acquisition of financial assets are raised by the trusts from Qualified Institutional Buyers (QIBs) as defined under SARFAESI Act for which trusts issue Security Receipts (SRs) to QIBs. QIBs include Banks, Financial Institutions, Insurance Companies, ARCs, mutual funds, eligible Non Banking Finance Companies (pursuant to RBI Guidelines in this regard) and Foreign Institutional Investors.
SRs represent contribution of the QIBs in the trust and are in the nature of undivided beneficial interest of the SR holders in the trust property (i.e. financial assets held by trust).
SRs are defined as securities under the Security Contract Regulation Act.