SARFAESI Act was enforced on 21 June 2002. It authorizes banks and other financial institutions to efficiently recover outstanding debts. It empowers banks and other financial institutions to auction off residential or commercial properties in an effort to recoup loan balances. Enacting SARFAESI Act has given birth to the Asset Reconstruction Companies in India. This act established the first asset reconstruction corporation in India (ARCIL). The Act stipulates their activities, capitalization, and funding, among other aspects. These companies are governed by the Reserve Bank of India. Several sections of the Act provide institutions with directives and authority to tackle the problem of problematic assets.

1. Measures of Asset
Reconstruction

3. Introduction
- SARFAESI ACT,2002
• SARFAESI Act was enforced on 21 June 2002.
• It authorizes banks and other financial institutions to efficiently recover outstanding
debts.
• It empowers banks and other financial institutions to auction off residential or
commercial properties in an effort to recoup loan balances.
• Enacting SARFAESI Act has given birth to the Asset Reconstruction Companies in
India. This act established the first asset reconstruction corporation in India (ARCIL).
• The Act stipulates their activities, capitalization, and funding, among other aspects.
These companies are governed by the Reserve Bank of India. Several sections of the
Act provide institutions with directives and authority to tackle the problem of
problematic assets.

4. History
• Prior to the SARFAESI Act of 2002, the Recovery of Debts Due To Banks and Financial
Institution act of 1993, was used for the recovery of default loans.
• It had features like debt recovery tribunals and debt recovery appellate tribunals.
• However there were several loopholes that were misused by the borrowers as well as
the lawyers.
• This led the government to reform it. Hence another committee led by Mr. Andhyarujina
was appointed.
• This committee recommended various new legislation to empower banks and other
financial institutions to take possession of NPAs.

5. • In 1998, the 2nd Narasimhan Committee Report highlighted that the
huge backlog of NPAs was continuing to exert pressure on the banking
sector and had severely impacted profitability.
• The report also recommended the creation of an asset recovery fund
that would acquire and recover stressed assets and enable banks to
focus on their core business.
• Pursuant to this and the enactment of the SARFAESI Act, many ARCs
were formed in India, with ARCIL being the first.
• These ARCS were set up as private entities, mostly with the support of
banks, and as of November 2017, there were 24 operating ARCs.

6. Measures of Asset Reconstruction
• The registration and regulation of securitization companies or reconstruction companies
are done by RBI. These companies, empower banks and financial institutions to take
possession of securities given for financial assistance and sell or lease the same to take
over management in the event of default.
• This act makes provisions for two main methods of recovery of the NPAs as follows:
• Securitization: it is the process of issuing marketable securities backed by a pool of existing
assets such as auto or home loans.
• Asset Reconstruction: It can be done by either proper management of the business of the
borrower, by taking over it or selling a part or whole of the business, or by the
rescheduling of payment of debts payable by the borrower enforcement of security
interest in accordance with the provisions of this Act.

7. • Section 9 of the act provides some measures for asset
reconstruction, which can be taken up having regard to the
RBI which are done by:
1.proper management of the business of the borrower;
2.sale or lease of a part or whole of the business of the borrower;
3.rescheduling of payment of debts;
4.settlement of dues;
5.enforcement of security interest;
6.taking possession of the secured assets.

8. Importance of asset reconstruction
• To understand the importance of asset reconstruction we first need to
know what is asset reconstruction company and how do they work?
• ARCs as defined under Section 2-ba of the SARFAESI Act which says it is “a
company registered with reserve bank under section 3 for the purpose of
carrying on the business of asset reconstruction or securitization, or both.
• Asset Reconstruction (ARC) is a specialized financial institution that buys
the Non-Performing Assets (NPAs) from banks and financial institutions. It
helps banks in cleaning up their balance sheets by buying their bad loans
NPA (Non-Performing Asset) Thus, it helps banks to concentrate on
normal banking activities.

10. Conclusion
• In a nutshell, an Asset Reconstruction Company is a specialized financial institution that buys the
NPAs or bad assets from banks and financial institutions, in other words, ARCs are in the business of
buying bad loans from banks. It can be done by either proper management of the borrower’s business,
by taking over its business or by making the sale of a part or whole of the business, or by the
rescheduling of payment of debts that is payable by the borrower according to the provisions of this
Act. Several steps were taken by the RBI and the government to bring life into the asset reconstruction
activities. The ARCs may get a vital role in asset restructuring under the new Insolvency and Bankruptcy
Code. In 2016, the RBI has amended the SARFAESI Act to give make the ARCs more efficient.