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Asset reconstruction companies (ARCs) have their genesis in the Sarfaesi Act, 2002, and corresponding Reserve Bank of India (RBI) guidelines in 2003, starting as an agency dedicated to resolving bad loans. The model was changed with the stipulation of a minimum investment of 5 per cent, which turned it into a low-capital-investment model. While ARCs geared up to raise capital to meet this stipulation, the minimum investment was tripled to 15 per cent in August 2014. This impacted the economics and raised question marks about their ability to raise funds.
However, ARCs and lenders slowly worked out appropriate pricing for sale of assets and their recovery, and redemption of security receipts (SRs) improved substantially under the 15:85 structure. ARCs invested over Rs 43,000 crore until FY22 to acquire assets at a pricing of over Rs 2 trillion. Of this, lenders have already realised 50 per cent of their SR holdings. Under the 15:85 structure, over 80 per cent of
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