What Is The Full Form of ARC?

3 minute read
Full Form of ARC

The full form of ARC is Asset Reconstruction Company. An ‘ARC’, or Asset Reconstruction Company, is a financial company registered with the RBI and governed by the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act (2002). An ARC is a financial company that purchases non-performing assets (NPAs), also known as bad loans or bad assets, from banks and other financial institutions at a mutually agreed-upon price with the goal of recovering or reconstructing the bad loans and assisting financial institutions and banks in cleaning up their balance sheets.

Technically, “Asset Reconstruction” refers to the acquisition of bad debts or assets in any financial assistance by any securitisation or reconstruction firm of any bank or financial institution for the goal of realising such financial assistance.

How Does an ARC Work?

The practice of removing debts from bank balance sheets is known as ‘asset reconstruction’ in India, although the identical procedure is known as securitization in other nations. The SARFAESI Act (2002), adopted in December 2002, under which an ARC or Asset Reconstruction Company is created, aids in the reconstruction of bad assets without the intervention of the courts. Since then, several ARCs have been constructed. The RBI has the jurisdiction and power to regulate all ARCs. An ARC’s operation can be summarised in a few points:

  • Through a joint agreement, the SARFAESI Act allows an ARC to buy ‘Non-Performing Assets’ (NPAs) or bad loans from banks.
  • An ARC will purchase NPAs from banks at a predetermined fee that is less than the number of NPAs.They mostly buy assets in two ways – by raising funds and by partnership model.
  • The ARC will then issue security receipts with a predetermined interest rate and generate further funds. The Security Receipt grants the bearer (QIB) a right, title, or interest in the ARC-purchased financial asset.
  • In the course of accepting a loan, the NPAs are transferred to the appropriate ARC, together with any promised collateral.
  • If an ARC’s debt is already secured by an asset, it can take ownership of that asset after a specific period of time, which is usually 60 days.
  • In a separate case, if the aforementioned asset is not secured, the corporations can initiate civil cases against the creditors to recover such debts.

Also Read: Full form of PD

Challenges Faced By ARC’s 

Some of the challenges are-

Companies specializing in the restructuring of assets face numerous obstacles in their work, primarily due to the intricate process of dealing with troubled assets and the ever-changing financial landscape. Among the primary challenges these companies encounter include:

  1. Determining Asset Value and Quality
  2. Legal and Regulatory Barriers
  3. Obtaining Cooperation from Borrowers
  4. Economic Influences
  5. Turnaround of Businesses
  6. Funding Issues
  7. Lack of Interest in the Market
  8. Delays in Resolutions
  9. Recovering Full Value
  10. Operational Challenges
  11. High Debt Levels of Borrowers
  12. Maintaining Liquidity and Capital Adequacy
  13. Balancing Investor Expectations
  14. Limited Resale Market
  15. Risk Management

Popular Full Forms

IPO Full FormROI Full FormFII Full FormPSU Full Form
FSSAI Full FormPHP Full FormGIC Full FormTSP Full Form
MAT Full FormPPA Full FormEMC Full FormSRS Full Form
ETC Full FormNSC Full FormREC Full FormITO Full Form
VC Full FormTDS Full FormFDI Full FormETF Full Form

We hope this blog has helped you understand the ARC full form and everything related to it. If you want to know more, find the 300+ full forms list on our blog. In the world of short forms, you can rely on the Leverage edu page to know about more full forms like this! Connect with us study abroad experts to achieve your international dream today! 

Leave a Reply

Required fields are marked *