Asset Reconstruction Companies: A Cure for Non-Performing Assets-An Indian Context

Indian financial system is burdened with a large volume of nonperforming assets (NPAs). These assets impede the ability of banks and financial institutions to serve the prudent intermediation needs of the society. To resolve NPA problems and help restore the health and confidence of the financial sector, Indian government and RBI have adopted various measures. Among those measures, Asset Reconstruction Companies are considered as the most viable and latest solution. A bank which has a large amount of non-performing assets on its balance sheet has two options i.e. to continue with the non-performing assets in the books of accounts while making loan provisions and initiating recovery of bad debts itself; or to write off such assets and shift these non-performing assets to Asset Reconstruction Companies to make its balance sheet clean. The present study explores the various recovery measures adopted by Indian banks and financial institutions and explains the mechanism of working of Asset Reconstruction Companies particularly ARCIL in India.