Arcil's process for acquisition, management, resolution and recovery
Acquisition of NPAs from banks & FIs:
The Banks/FIs sell NPAs to ARCs by way of competitive bidding process.
Due-diligence of assets:
Banks/FIs enable due-diligence of documents (loan/ security documents entered into by the banks/ FIs with borrower and other details pertaining to the borrower available with the bank/FI) relating to financial assets offered for sale.
Setting up asset-specific Trusts:
Banks/FIs assign the financial assets of the borrowers to trusts set up by Arcil through an assignment agreement.
Issuance of SRs:
Purchase consideration for assignment of the financial assets is paid by the trusts to selling banks/FIs from the proceeds of the issue of SRs to QIBs.
Management of Trust & resolution of assets therein:
Pursuant to SARFEASI Act and RBI Guidelines, Arcil is required to act as trustee of the trusts. Arcil as trustee undertakes the asset reconstruction by implementing resolution empowerments as provided under SARFAESI Act and RBI Guidelines in this regard (e.g. re-schedulement of debt, settlement, enforcement of security interest under SARFAESI Act, realisation of dues through legal means such as through DRT etc.) and realizes monies from the financial assets held in trusts.
Sharing of Investments:
As Trustee, Arcil periodically shares all information with the SR holders and also declares NAV of SRs as per the RBI Guidelines. .
As per new RBI guidelines, a minimum of 15% of the SRs issued by trusts will now be subscribed by Arcil as ARCs, however Arcil can subscribe up to 100% of the SRs if it so desires.
Ways of Recovery:
- Arcil in its role acts as a stress fund manager to resolve the stressed businesses by looking at management quality, industry viability and quality of the assets, and formulates a resolution approach based on following strategies:
- Restructuring: This process involves rescheduling of payments of borrowers, recapitalization of the business by roping in investors and generating interest in the market for providing working capital, by converting debt into equity and/or by inducting a professional management into the existing business.
- Settlement: Arcil also tries to negotiate with the borrower for a reasonable settlement by asking the borrowers to make staggered payments or bullet payments
- Liquidation of Assets: As an exhaustive recovery measure, Arcil may recover money by selling off Assets mortgaged by the borrowers. Arcil conducts thorough due diligence and valuation of the assets and follows a transparent procedure for sale of assets through auction by inviting bids from multiple bidders.