The purchase consideration for effecting such a transfer includes:
Cash – in such cases the selling bank/ FI ceases to hold any interest in the financial asset post sale to ARC.
S2. Security Receipts (refer detailed note in FAQ no.5), or other bonds/ debentures issued by SC/RC. In such cases, the pricing is linked to Recoveries and the selling bank/FI continues to hold interest in the financial asset. Such securities will be classified as investments in the books of banks/ financial institutions.
Banks/financial institutions may enter into an agreement with SC/RC to share, in an agreed proportion, any surplus realised by SC/RC o on resolution of the concerned asset.
In case of auctions, the following process is commonly adopted
An ARC means a Securitisation company(SC) or Reconstruction company(RC) registered under the Companies Act, 1956 and which has obtained certificate of registration from Reserve Bank of India to commence or carry on the business of securitisation or assets reconstruction under section 3 of the SARFAESI Act, 2002 (Act). A SC or RC can undertake only securitisation and reconstruction activities and the following functions provided under section 10 of the Act;
c. act as receiver if appointed by any court or tribunal.
Special features of SRs
The SRs issued by SCs/RCs are predominantly backed by impaired assets.
These SRs have the following unique features
In the event of non-realisation of the financial assets, the SR holders representing 75% of the total value of SRs issued by the SC/RC can call for a meeting of all the SR holders in a particular scheme and every resolution passed in such meeting shall be binding on the SC or RC.