Asset Reconstruction / NPA Sale to ARC Checklist
ASSET RECONSTRUCTION / NPA SALE TO ARC CHECKLIST
Bank: {{client_name}} · Branch/NPA management unit: {{branch_name}} · Period: {{period_end}}
Purpose: to test a bank's sale of a non-performing asset (NPA) to an Asset Reconstruction Company (ARC) under the SARFAESI Act, 2002 framework — governance of the sale process, security receipt (SR) valuation, and the minimum-retention percentage the originating bank must continue to hold.
A. Sale-Process Governance
- NPA sale approved per the bank's board-approved policy on sale of financial assets — eligible NPA categories, minimum period as NPA before sale, and reserve-price methodology all followed as policy prescribes.
- Sale conducted through a transparent process (Swiss challenge method or e-auction platform, as applicable) with adequate prior publicity, rather than a bilaterally negotiated sale outside the policy framework.
- Reserve price for the NPA determined through an independent valuation (or the bank's own approved methodology) before inviting bids — sale not concluded below the reserve price without the requisite escalated approval.
B. Minimum Retention & Consideration Structure
- Bank retains the RBI-prescribed minimum percentage of the total sale consideration (verify the current retention percentage against the applicable RBI Master Direction/circular in force, as this has been revised over time) in the form of Security Receipts (SRs) rather than accepting the entire consideration in cash.
- Where consideration is structured as cash plus SRs, the cash portion is not artificially inflated (e.g. through a side arrangement) to circumvent the minimum-SR-retention requirement.
- Deferred/contingent consideration linked to the ARC's eventual recovery (if any) is disclosed and its recognition in the bank's books tested for appropriateness — not recognised as certain income upfront.
C. Security Receipt (SR) Valuation & Subsequent Measurement
- SRs received are initially recognised at the appropriate value (typically the net book value of the asset sold, or fair value if lower/more appropriate) per the applicable accounting framework.
- SRs subsequently valued at each reporting date based on the ARC's Net Asset Value (NAV) declaration for the underlying trust/scheme — the bank does not simply carry SRs at cost indefinitely without periodic NAV-based reassessment.
- Any provisioning required where SR value has declined below the carrying amount is recognised in the period the decline is identified, not deferred to a later period.
D. Post-Sale Reporting & De-Recognition
- NPA de-recognised from the bank's books only on actual transfer of the asset (and the risks/rewards of ownership) to the ARC — not merely on signing an agreement to sell.
- Provisioning reversal / loss on sale computed correctly as the difference between net book value and total consideration (cash + SR value) received, with any shortfall charged to the P&L in the period of sale.
Overall conclusion on the NPA sale tested: ____________________________________________
Prepared by: ____________________ Reviewed by: ____________________
Date: 30 July 2026
