Role of ARCs in NPA Management

Abstract

Business of ARC was made permissible in India after SARFAESI Act 2002 came into force. Section (3) of the said Act permits formation of companies for carrying out securitization business. All ARCs in India registered are registered under section (3) of the said Act and are treated as NBFC. These are supervised by RBI under the provision of RBI Act, 1934. However, due to very nature of the assets acquired by them certain exemption regarding capital requirement, provisioning norms etc. are allowed to them. Recovery of NPAs is a special technique requiring expertise knowledge and consumes much time and effort. ARC with their sound financial base and skilled resource pool could provide a good solution. Sale of NPL to ARC would help the banks to clean their balance sheet, improve their market value, lower cost of fund and to focus on their core business. However, survival of the business depends on its ability to resolve the loans in a meaningful way and recycle the fund entrapped in it. It is necessary that ARC not merely plays the role of an agent to bail out the banks by deferring losses but becomes truly involved in the business on risk and return basis.