Definition
Security Receipts (SR)
Security Receipts are instruments issued by an Asset Reconstruction Company to selling banks, representing a claim on recoveries from the acquired bad loans.
When an ARC buys NPAs, it often pays the bank partly in cash and partly in Security Receipts. The SRs are redeemed as and when the ARC recovers money from the underlying stressed assets, so their value depends on actual recovery.
The RBI requires banks holding SRs to provision against them based on their net asset value, preventing banks from masking losses by simply swapping bad loans for optimistically valued receipts. The cash-versus-SR split in ARC deals is therefore closely watched.
Related terms
- Provision Coverage Ratio (PCR)The Provision Coverage Ratio is the proportion of a bank's gross non-performing assets covered by provisions, showing how well it is buffered against loan losses.
- Recovery (Loans)Loan recovery is the money a bank gets back from a defaulted or written-off borrower, through settlement, asset sale, legal action or insolvency proceedings.
- Haircut (Resolution)A haircut is the portion of their dues that lenders forgo when a stressed loan is resolved, settled or sold below its full value.
- Asset Reconstruction Company (ARC)An Asset Reconstruction Company buys bad loans from banks at a discount and works to recover or restructure them, helping clean up bank balance sheets.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.