What is Acquisition Cost (ARC)?
Acquisition Cost is the price an ARC pays to a bank for a defaulted loan, typically expressed as a percentage of the dues. It is paid in part cash and part Security Receipts, with the SR realisations depending on the eventual recovery.
| Meaning | Acquisition Cost is the price an ARC pays to a bank for a defaulted loan, typically expressed as a percentage of the dues. It is paid in part cash and part Security Receipts, with the SR realisations depending on the eventual recovery. |
|---|---|
| Category | ARC |
| Related Laws | SARFAESI; RBI Master Direction on ARCs |
| Who Uses It | ARCs, banks |
| Why It Matters | Drives the bank's immediate cash inflow and the ARC's resolution margin. |
Acquisition Cost (ARC) explained in plain English
A practitioner's view written for borrowers and advisors — not a textbook definition.
Acquisition Cost is the price an ARC pays to a bank for a defaulted loan, typically expressed as a percentage of the dues. It is paid in part cash and part Security Receipts, with the SR realisations depending on the eventual recovery.
In practice, Acquisition Cost (ARC) is used most often by arcs, banks. Each of them sees the term from a slightly different angle: borrowers care about protection and outcomes, lenders care about classification and recovery, regulators care about consistency and disclosure.
The legal anchor for Acquisition Cost (ARC) is SARFAESI; RBI Master Direction on ARCs. RBI master directions, the SARFAESI Act 2002, the RDB Act 1993 and the IBC 2016 commonly interplay, depending on the loan size, security and stage of stress.
Why does it matter? Drives the bank's immediate cash inflow and the ARC's resolution margin. For a stressed borrower, getting this concept right early often saves several months of penal interest, legal cost and credit-score damage.
A real example: ARC pays 40% of dues as acquisition cost — 15% cash and 25% in SRs. The mechanics may look complex, but the underlying logic — the bank wants closure, the borrower wants a fair outcome — is straightforward once the right framework is in place.
If you are facing a situation involving Acquisition Cost (ARC), the safest first step is a structured case review with a senior ex-banker who has handled comparable matters across banks and ARCs in India.
Where you'll encounter Acquisition Cost (ARC)
Whenever a loan moves from "Standard" to "stressed", Acquisition Cost (ARC) is one of the words that starts appearing in notices, bank emails and lawyers' opinions.
Sanctioning committees, recovery teams and risk officers use Acquisition Cost (ARC) to classify accounts, decide provisioning and approve resolution paths.
Acquisition Cost (ARC) appears in pleadings, securitisation applications, OAs, Section 7/9 petitions and SARFAESI writs as part of the dispute record.
When stressed loans are sold to ARCs or special-situations investors, Acquisition Cost (ARC) is used in term sheets, assignment agreements and due-diligence reports.