ARCS

Assets Reconstruction Companies (ARCs) acquire non-performing assets (NPAs) from banks or financial institutions along with the underlying securities mortgaged and/or hypothecated by the borrowers to the lenders. The ARCs then try and manage or resolve these NPAs acquired from banks. It can even infuse more funds in order to reconstruct the asset. If reconstruction is not possible and the borrower is unwilling to repay the loan, the ARCs even sell the secured assets.

While the basic principle of ARCs is the same everywhere—to acquire bad loans to resolve them—the essential difference is in the ownership of ARCs, public or private. After the Asian Crisis, countries like Indonesia, Korea, Malaysia, and Thailand have adopted government-owned and funded ARCs. The Philippines, on the other hand, has opted for private ARCs. India, too, has adopted the private sector model of asset resolution. Here, ARCs are set

up as non-governmental vehicles mostly with support from the banking sector and other investors. Also, India has opted for multiple ARCs, which helps in better pricing of bad loans, as opposed to the single ARC model followed in many countries. The RBI has already allowed licenses to three ARCs and some banks are also planning to float ARCs.

ARCs acquire NPAs by way of ‘true sale’, i.e., once an NPA has been sold, the seller has no further interest in that asset. ARCs are a product of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).