Alchemist Asset Reconstruction Company Limited
Genesis of ARCs

The genesis of asset reconstruction companies is rooted in the collective policy response to the problem of the huge stock of non-performing assets (NPAs), nestling in the country’s financial asset pool covering the entire spectrum, wholesale & retail, across all sectors, which has shown a growing trend in the recent past. The Narasimham Committee in its first report envisaged the setting up of a central Asset Reconstruction Fund with money contributed by the Central Government, which was to be used by banks to shore up their balance sheets to clean up their non-performing loans. This idea did not work and therefore in its second report the Committee envisaged the idea of asset reconstruction companies on lines similar to those already successfully functioning in Malaysia, Korea and several other countries in the World.

The outcome of the recommendations made by Narasimham Committee and Andhyarujina Committee was the SARFAESI Act, 2002 which gave birth to the Asset Reconstruction Company. As per the SARFAESI Act, a company has to be registered with the Reserve Bank of India under section 3 of the Act to carry on the business of securitisation asset reconstruction.

The resolution of non-performing loans has assumed great importance for all Banks and Financial Institutions in view of the impact NPAs have on Bank’s profitability, capital and human resource allocation. In spite of all the efforts made to resolve the NPAs, the proportion of non-performing loans has been on the rise due to economic swings, inadequate risk management practices, volatility of exchange rates etc.