Full form of ARC in banking is Asset Reconstruction Company. A ARC is a financial institution whose focus is dealing with distressed assets particularly non-performing assets (NPAs) which are owned by financial institutions and banks. The principal purpose for the ARC will be to purchase, manage and recover bad loans, or assets declared to be not performing by the lenders.
Purpose of ARCs
The principal goal for an ARC is to assist financial institutions and banks clean their balance sheets by buying their NPAs. Through this process, ARCs can restructure, buy, or even sell distressed assets, which ultimately improves the financial health of lending institutions. This lets banks concentrate on their lending operations instead of being burdened by bad loans.
How ARCs Operate
ARCs usually acquire NPAs at a discounted rate from banks and other financial institutions, and take ownership of distressed assets. The ARCs use a variety of methods to collect the charges, including restructuring the loans, transferring these assets and pursuing legal action to recover the debt. The objective is to increase the recuperation amount while minimizing losses caused by these non-performing assets.
Regulatory Framework
In India ARCs are controlled through the Reserve Bank of India (RBI) under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) 2002. The Act gives ARCs an legal basis for acquiring securities, enforce their security and collect fees. In addition, the Securities and Exchange Board of India (SEBI) also oversees the operation of ARCs by establishing guidelines for their business operations.
