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An Asset Reconstruction Companies (ARCs) is a specific type of financial institution (having registered with the RBI) purchasing the NPAs or bad assets from banks so that the latter can clear such debts from their balance sheets. Thus, ARCs are in the activities of purchasing the bad loans from the banks or even financial institutions.
Thus, the balance sheet of the banks is cleaned up when they sell their NPAs to the ARCs. This will help the banks to focus on their routine banking activities and save their time of chasing the defaulters for recovery. The banks sell the bad assets (NPAs) to the Asset Reconstruction Companies (ARCs) at a mutually agreed value.
It is observed that out of 19 Public Sector Banks (excluding State Bank Group), majority i.e. 10 are under Prompt Corrective Action (PCA) by RBI due to NPAs. Further, the stressed assets of the banking system are at a significantly elevated level and they are ever increasing.
However, the ARC faces many hurdles and challenges to overcome in order to perform its best in this field.
Further, the Government of India has passed the Insolvency and Bankruptcy Code (IBC) offering various measures to overcome many such problems related to the functions of Asset Reconstruction Companies (ARCs).
The various challenges which stop ARCs scale up to a leading role in whole NPA play can be discussed as follow:
It is utmost necessary for a rigorous and a realistic approach to pricing between the banks and ARCs.
Therefore, it is an urgent need for all stakeholders, including the regulator, to come together to make the entire process of NPA sale, resolution, recovery and revival fast and smooth.
The ARC has a very vital role to play in current scenario and it should be strengthened to solve the massive NPA problem prevailing in Indian banking industry.
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