[Economy] Q." Asset Reconstruction Company is an institutional innovation with significant benefit at the macro and micro level." Substant

Answer : An asset reconstruction company’s primary goal is to manage and to make profitable those assets which have been under performing or become formally classified as NPA’s belonging to
companies who have been unable to generate sufficient timely revenue to service their outstanding obligations. In the process, the whole economy benefits, as a previously non performing asset is now restored to function normally. That such an option exists itself is a means of boosting entrepreneur’s confidence, and gives other options than filing for bankruptcy or insolvency in times of stress.

ARC’s charge a management fee or commission for their services from the distressed company/individual.

In India the problem of recovery from NPAs was recognized in 1997 by Government of India. The Narasimhan Committee wanted to reduce the high level of NPAs as a means of banking sector reform.

Asset Reconstruction Company (Securitization Company / Reconstruction Company) is a company registered under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SRFAESI) Act, 2002. It is regulated by Reserve Bank of India as a Non Banking Financial Company

ARC has been set up to provide a focused approach to Non-Performing Loans resolution issue by:-

(a) Isolating Non Performing Assets (NPAs) from the Financial System

(b) Freeing the financial system to focus on their core activities and

(c) Facilitating development of market for distressed assets.

Asset Reconstruction Companies have seen an increase in their client base during the recession, with many companies experiencing financial difficulties and having distressed assets in their possession.

India’s first ARC was a company named ARCIL which has been a leader and a pioneer in this field, having established industry standards for the rest of the market to follow.

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