Asset Reconstruction Companies

The bubbling issue of Non-Performing Assets (NPAs) in the Indian banking sector has become the subject of much discussion. This has become one of the leading and alarming problems in the Banking and Financial sector in India. In order to tackle the problem of NPAs, the concept of Asset Reconstruction Company (ARC)came into existence. The Secularisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) provides legal base for setting up ARCs in India registered with RBI.

So, ARC’s are specialized financial institution that purchase the bad assets or NPAs of banks and help banks to clean up their balance sheets. This helps banks to save their time and efforts and focus more towards the core banking activity. Later, ARCs sells/auction the bad loans and collects the money and gives it to bank after keeping its profits.

Major roles/functions of ARCs are acquisition of financial assets, sale or leasing of business of the borrower to others to recover money, rescheduling of debts etc.

In order to buy bad loans from banks, ARCs get funds from bonds, debentures and most importantly through issue of security receipts.

Currently there are 19 ARCs in India. Some of the top ARCs in India are:

• Asset Reconstruction Company (India) Limited (ARCIL)
• Reliance Asset Reconstruction Company Limited
• Phoenix ARC Private Limited
• JM Financial Asset Reconstruction Company Limited

Thank You

Regards

Author- Sakshi Lunia

Kautilya

IBS Mumbai