In banking, the full form of ARC is Asset Reconstruction Company. An ARC is a specialized financial institution that focuses on the resolution of distressed assets, primarily Non-Performing Assets (NPAs) held by banks and financial institutions. The primary function of an ARC is to acquire, manage, and recover bad loans or assets that have been declared as non-performing by lenders.

Purpose of ARCs

The main purpose of an ARC is to help banks and financial institutions clean up their balance sheets by purchasing their NPAs. By doing so, ARCs can restructure, recover, or sell the distressed assets, ultimately improving the financial health of the lending institutions. This allows the banks to focus on their core lending activities rather than being burdened with bad loans.

How ARCs Operate

ARCs typically acquire NPAs at a discount from the banks and financial institutions, taking ownership of the distressed assets. The ARCs then employ various strategies to recover the dues, such as restructuring the loans, selling the assets, or taking legal action for recovery. The goal is to maximize the recovery amount while minimizing the losses associated with these non-performing assets.

Regulatory Framework

In India, ARCs are regulated by the Reserve Bank of India (RBI) under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), 2002. This Act provides ARCs with the legal framework to acquire assets, enforce security, and recover dues. The Securities and Exchange Board of India (SEBI) also regulates the functioning of ARCs through guidelines related to their operations.