The SARFAESI Act of 2002, standing for the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, holds a pivotal position in the Indian financial landscape, aiding in debt recovery and the rejuvenation of distressed assets. Section 7 of this legislation focuses specifically on empowering asset reconstruction companies (ARCs) to issue securities as a means to raise funds for their operational requirements.
Understanding Asset Reconstruction Companies (ARCs)
ARCs are specialized financial entities mounted with the motive of obtaining non-appearing assets (NPAs) from banks and financial institutions. NPAs, typically known as awful loans, constitute money owed not going to be repaid with the aid of the borrower. The primary goal of ARCs is to breathe new life into these assets through effective restructuring and management, thereby alleviating the burden on banks and fostering financial stability.
The Role of Section 7 in ARC Operations
Section 7 of the SARFAESI Act empowers ARCs to mobilize funds by issuing various securities, such as security receipts, debentures, or bonds. These funds are primarily earmarked to finance the acquisition and proficient management of NPAs.
Crucial Provisions of Section 7
Diverse Securities Types: ARCs have the flexibility to issue different securities, including security receipts, debentures, or bonds.
Exemption from Registration: Security receipts issued by ARCs enjoy an exemption from mandatory registration with the Securities and Exchange Board of India (SEBI).
Investment by Qualified Buyers: Qualified buyers (QBs), comprising institutional investors, banks, and mutual funds, can subscribe to security receipts.
Regulatory Vigilance: The Reserve Bank of India (RBI) oversees the issuance of securities by ARCs, ensuring adherence to regulatory requirements.
Significance of Section 7 for ARCs
Section 7 plays a pivotal role in facilitating ARCs' access to the necessary capital for their asset reconstruction endeavors. The ability to raise funds through securities equips ARCs with the financial wherewithal to acquire and manage NPAs effectively, contributing significantly to the overall well-being of the Indian financial system.
In summary, Section 7 of the SARFAESI Act acts as a vital mechanism enabling ARCs to secure funds and fulfill their mandate of revitalizing stressed assets. By enabling the issuance of securities, the Act empowers ARCs to actively contribute to the constructive development of the Indian financial system
