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Asset Reconstruction Companies: An Analysis of Growth (A Case Study of ARCIL)

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Abhigyan Vol. XXXVI No. 1 (April- June 2018) ISSN - 0970-2385

Asset Reconstruction Companies: An Analysis of Growth

(A Case Study of ARCIL)

Asset Reconstruction Companies (ARCs) established under SARFAESI Act 2002, has been proved as one of the
most effective curative management strategies in resolving the problem of Non-Performing Assets (NPAs) in
Indian Banking Sector. The paper discussed the recovery mechanism of NPAs followed by ARCs and the problems
faced by ARCs in India. As ARCs is more capable in resolving the problems of NPAs but the total net worth of all
the existing ARCs is not enough to acquire all the stressed assets of Indian banks, there is a huge growth prospects
not only for existing ARCs but also for new upcoming ARCs in future. The correlation between the profits of
ARCIL and Gross NPAs of banks is depicting a clear picture in this context. Many analysts consider profits earned
by ARCs as Money from Junk. Moreover, the paper also highlights the how the New Bankruptcy Code 2016 will
bring more opportunities for ARCs.
Key Words : NPAs, SARFAESI Act, Asset Reconstruction Companies (ARC), ARCIL, New Bankruptcy Code
2016

ntroduction

Indian Banking System has been facing a major problem i.e. rising
of Non-Performing Assets (NPAs) in both public and private
sectors banks. The level of NPAs acts as a mirror which reflects the
performance of banks. A high level of NPAs suggests high
possibility of large number of credit defaults. This increasing
number of credit defaults affects not only the profitability position
but also the net worth of the banks. It also creates an ill effect on
the goodwill of the banks and restricts the cash flow of the banks
due to provisioning of fund made against these NPAs. “High level
of NPAs can be serious drag on overall performance of economy
due to diversion of its management and financial resources towards
Bharat Kumar Meher recovery of NPAs. Greater the resources needed by banks to reserve
Research Scholar , for losses, lesser is the amount of capital they can leverage.” This
Department of Commerce, problem of NPA has become a national issue as it hinders the path
Dr. Harisingh Gour Central University, of the growth of the nation. Many internal checks and controlling
Sagar.
schemes have been introduced by RBI to reduce the level of NPAs.
The RBI has also made many efforts in checking few negligent
G. L. Puntambekar practices of bankers like account of poor project evaluation,
Professor and Dean
School of Commerce & Management, extensive project delays, poor monitoring, faulty evaluation of
Dr. Harisingh Gour Central University, mortgaged assets, etc. Such efforts were proved helpful to reduce
Sagar. the chances of occurring NPA to a certain extent. Most of the
Indian Banks have also appointed Relationship Managers who have
intact knowledge about the borrowers, credit rating system and

Paper received on March 02, 2017

11
 Asset Reconstruction Companies: An Analysis of Growth (A Case Study of ARCIL)

early warning signals and so on to manage these stressed assets but such measures are being proved failure
in bringing fruitful results, consequently the problem of NPAs still exists.
For the purpose of controlling NPAs in Indian Banks, the Government of India, the RBI and many
banks have collectively formulated and implemented various types of strategies to manage these NPAs.
These strategies include One Time Settlement Schemes, Debt Recovery Tribunals, Asset Reconstruction
Companies (ARCs), Corporate Debt Restructuring, BIFR for Sick Units, following early warning signals,
etc. Among these strategies the ARCs established under the SARFAESI Act, are the most effective tool in
recovering the NPAs. As the debt recovery ratio of ARCs is higher as compared to the other recovery
channels, the RBI has given green signal to three more ARCs on 3rd August, 2016. The problem of NPA
in Indian banks is getting bigger and bigger. An upward trend during the post global crisis, can be seen
with the increase of amount of Gross NPA from Rs. 38,968 crores in 2007 to Rs. 1,48,257 crores in
2015. As the problem of NPA in Indian banks is growing, there is a huge possibility of growth of ARCs
in India. Moreover, the implementation of New Insolvency and Bankruptcy Code 2016 is a welcome
move towards improving the credit environment and enhancing the creditor–debtor relationship. This
step may be an additional advantage to the ARCs for recovering NPAs. This study is an attempt to
analyse the future prospects of ARCs in India by determining the existence and degree of correlation
between the amount of increasing NPAs and the growth of Reconstruction companies, the various
problems faced by ARCs and the impact of New Bankruptcy Code on the functioning of ARCs in India.
Review of Literature
Some researches on SARFAESI Act and ARCs
are there like the concept of securitisation and
reconstruction, the need of The level of NPAs acts as a mirror such act in this economic
scenario, recovery process which reflects the performance of and few provisions related to
recoveries of NPA through banks. A high level of NPAs suggests this act along with the
problems faced by ARCs under the act by Sekar &
Balachandran (2016), high possibility of large number of h i s t o r y, b e n e f i t s ,
performance of ARCs along credit defaults. with the management of
NPAs by CDR and ARCs mechanism by Chakrabarti,
(2015), need of SARFAESI act to establish ARCs,
favourable effect of ARCs on NPAs and few difficulties in the implementation of Securitization Act by
Nagaraju & Karuna M, (2014). None of the research studied the growth prospects of Asset
Reconstruction Companies. This paper is mainly focussed on this research gap and attempted to study
the prospects for growth prospects of ARCs due to the rising of NPAs level in banks.
Objectives of the Study
• To study the various problems faced by Asset Reconstruction Companies in India.
• To determine the correlation between the growth rate of NPA in Indian Banks and profitability
growth rate of ARCs in India.
• To analyse the impact of New Insolvency and Bankruptcy Code 2016 on the growth prospects of
ARCs.
Hypothesis
 HA0 : There is very low degree of Correlation between the growth of NPA in Indian Banks and
profitability growth of ARCs in India.
 HA1 : There is a moderate or high degree of Correlation between the growth of NPA in Indian
Banks and profitability growth of ARCs in India.

12
Abhigyan Vol. XXXVI No. 1 (April- June 2018) ISSN - 0970-2385

Research Methodology
It is an analytical study based on secondary data retrieved from different reliable sources. ARCIL has been
selected from 16 ARCs in India, as it is the oldest ARC with the highest amount of Net Worth. The
period taken into consideration for the study is from 2009 to 2015. For testing the hypothesis, Karl
Pearson's Coefficient of Correlation (r) has been used. By this tool the degree of correlation between the
growth of NPA in Indian Banks and profitability growth of ARCIL has been ascertained. After
determining the value of Karl Pearson's Coefficient of Correlation (r), Student-t Test has been used to
determine the existence of significant correlation between the growth of NPA in Indian Banks and
profitability growth of ARCIL.
Significance of the Study
The study is based on the growth prospects of ARCs in India. ARCs have been proved as the most
effective tool in recovering NPAs as compared to other recovery tools like Debt Recovery Tribunals and
Lok Adalats. Hence this paper could provide a proper understanding regarding the need of more ARCs
in India. The paper also discussed about the various problems faced by the ARCs and therefore the policy
makers may take necessary measures to overcome the problems of ARCs in order to strengthen the
position of ARCs. As the study also depicts the impact of New Bankruptcy Code 2016 on the growth
prospects of ARCs and Indian Banking Sector, it can also familiarize the many industrialists, bankers and
scholars regarding the new norms and provisions followed at the time of insolvency.
About the Asset Reconstruction Companies
The word asset reconstruction company is typically used in India but at global level the equivalent phrase
used is “asset management companies”. The word “asset reconstruction” in India was used in Narsimham
I report where it was envisaged for the setting up of a central Asset Reconstruction Fund with money
contributed by the Central Government. However, this
never saw the light of the day and later on Narsimham
II floated the idea ARCs. This increasing number of credit Finally the Parliament of
India paved the way for formation of Securitisation
C o m p a n i e s a n d defaults affects not only the profitability Restructuring Companies
( S C / R C s ) u n d e r t h e position but also the net worth of the S e c u r i t i s a t i o n a n d
Reconstruction of Financial banks. Assets and Enforcement of
Security Interest Act, 2002, (SARFAESI Act), where
after the Reserve Bank of India has granted certificates
of registration to 13 Companies to pursue the
business of securitisation and asset reconstruction. The Asset Reconstruction Companies (ARCs) through
SARFAESI Act, “enables the secured creditors to realise the long-term assets, manage problems of
liquidity, asset liability mismatch and recovery of their dues stuck in the non-performing assets, by
exercising the powers under section 13(4), without the intervention of the Court or Tribunal, to take
possession of the securities and sell them by adopting the measures for recovery or reconstruction as per
the provisions of the act.” As per RBI, ARC performs the functions namely Acquisition of financial
assets, Change or takeover of Management or Sale or Lease of Business of the Borrower, Rescheduling of
Debts, Enforcement of Security Interest and Settlement of dues payable by the borrower. The whole
process of recoveries of NPA by ARCs is explained with the help of the flow chart mentioned below.
NPA Recovery Mechanism by ARCs
The loan amount taken by a client by providing mortgaged asset, will be converted into NPA if the
borrower fails to repay it and it is due for 90 days or more. Now the bank has the option either to recover
the loan itself or sale that NPA to an ARC. ARC will raise the necessary funds through a subscription
instrument floated by the trust. This instrument is known as Security Receipt (SR) and this will be issued
to qualified institutional buyers. The banks or financial institutions (FIs), who desire to transfer their bad

13
 Asset Reconstruction Companies: An Analysis of Growth (A Case Study of ARCIL)

assets to ARCs, invite intending ARCs to express their interest which will show their willingness to
acquire the financial assets of the Banks/FIs. The seller Banks/FIs detail out their terms and conditions of
sale of financial assets which are to be accepted by intending ARCs. Before giving the price bid by the
intending ARCs, due diligence is to be taken. The ARCs would give indicative offer to seller bank or FI.
On receipt of acceptance from seller, they execute assignment of debt with seller bank/FI so that SC/RC
may take further steps for resolution of acquired NPAs. The non-fund based facilities are generally not
taken over since these are obligations. Until and unless these are crystallized as liabilities, these are not
taken over. In case these facilities are crystallised as liability ARCs also take over them. The assets will be
taken over either on sale basis or agency basis after applying certain discount. The discount will be
worked out in consultation with banks/FIs and it is based on various factors like security value,
promoters profile, the current status of the assets (whether running or idle), age, product market, etc.
The whole process is to be done in a transparent manner and on mutually agreed terms. In case of
consortium or multiple banking, if 75 per cent of the lenders by value agree then the remaining
banks/FIs will be obliged to accept the offer by the ARC. The borrower does not have the right to oppose
the transfer of assets to ARCs, if the board of the respective banks/FI has agreed for such transfer. Any
dispute between the ARCs and Banks/FIs shall be resolved only through arbitrator and no one can
approach the courts. Almost all the State Governments have rationalised the rates of stamp duty for
assignment of debts and registration charges to smoothen the process for acquisition of financial assets by
the ARCs. This whole NPA Recovery mechanism can be easily understood with the help of the following
flow chart.

Figure 1
Flow Chart of NPA Recovery Mechanism followed by ARCs

Asset
Bankers Non-Performing Assets Reconstruction
(Lenders) Company
Secured Amount Remittance of share of point

r
fte
Financial Assistance (Loan)
Financial Assets

sa
(collateral seoi

e
hg
Security Receipts

tga t
Finance

or oun
M m
ing A
s ell Loan
by g
an rin
f Lo uctu
o str
very Re
co
Re

Borrowers Qualified
(Obligor) Institutional
Buyers

As per many economists, the ARCs have been proven as the most effective recovery channel for NPAs. A
sharp rise in sale of stressed assets to ARCs during FY2014 has been reported. With a view to clear up
NPAs, Indian banks resorted to sale of such assets to ARCs at a mutually agreed price. According to RBI
estimates, Indian banks sold stressed loans worth $2.8 billion during FY2014 as against $0.2 billion
during FY2013. In the first quarter of FY2015, banks sold more than $2.5 billion to ARCs prior to
change in ARC investment guidelines by RBI. Since then, the transactions dropped significantly and
media reports suggest that more than 1,000 NPAs with aggregate principal dues of $4 billion were put
on auction by various banks. Of these, only $0.3 to 0.5 billion were successfully sold to ARCs. Again
there was an estimate that ARCs would acquire NPAs worth Rs 12,000-14,000 crore in 2015-16 but no
such further information related to acquiring of NPAs by ARCs has been disclosed by Indian Banks yet.

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Abhigyan Vol. XXXVI No. 1 (April- June 2018) ISSN - 0970-2385

In the year 2009 the amount of GNPAs was `68973 crores out of which the book value of stressed assets
transferred to ARCs was `51,542 crores which is about 75 percent of GNPAs. Similarly the amounts of
stressed assets transferred to ARCs were `82,217, `74,088, `80,500, `88,500 and `92,450 against the
Gross NPAs of `68,973, `84,747, `97,922, `1,42,300, `1,94,000 and `2,55,400 in the year 2010, 2011,
2012, 2013 and 2014 respectively. In the year 2015 the amount of GNPAs increased to `312574 crores
and the amount of stressed assets transferred to ARCs is `189000 crores. The increase in GNPAs is more
than the increase in the value of stressed assets transferred to ARCs from 2009 to 2015 which indicates
that there are more opportunities for ARCs in future.

Figure 2
Graph representing the Gap between Amount of GNPA & Amount
of NPAs Transferred to ARCs (Amt. in Crores)
350000

300000

250000

200000

150000

100000

50000

0
2009 2010 2011 2012 2013 2014 2015

Source : GNPAs from RBI Website and Amount Transferred to ARCs from Newspapers

The above graph depicts a gap between the demand for selling NPAs by banks and the actual purchases
of NPAs made by ARCs in India during the period from 2009 to 2015. An average percentage of about
57 percent of total GNPAs has been transferred to ARCs during the year 2009 to 2015.The shaded area
is representing the deviations of amount transferred to ARCs from the total amount of GNPAs in Indian
Banks. The graph clearly indicates that the amount of GNPAs in Indian banks is increasing with a higher
amount year by year which would create more opportunities for ARCs.
At present there are 16 reconstruction companies in India and RBI has given green signal to 3 new
ARCs. The total equity capital of these 16 ARCs is Rs.4,000 crore and the amount of loans that can be
cleaned up is Rs.28,000 crore, which is a small fraction of the stressed assets that are for sale. Hence it is a
clear indication that ARCs are having more growth prospects in near future. Even by considering this
growth analysis of Reconstruction Companies, RBI in August 2014 had asked ARCs to pay at least 15
percent of the net value of a stressed asset up front while purchasing it from banks—significantly higher
than the 5 percent which was prevalent. Again in the Budget 2016, “ARCs got a big boost from finance
minister Arun Jaitley as he raised the sponsor holding to 100 percent from 49 percent, a move that could
reduce the burden on banks which want to sell off their bad loans.” (Shukla, Budget 2016: ARCs got a
big boost as sponsor holding raised to 100% , 2016).
Even though there is a huge opportunity of ARCs in this current scenario but there are also certain
problems which are being faced by existing ARCs of India.

15
 Asset Reconstruction Companies: An Analysis of Growth (A Case Study of ARCIL)

Problems Faced by ARCs

Problem of Funding for ARCs : Banks say that reconstruction firms are so poorly capitalised that they
can't do a meaningful job of helping the banking system recover because reconstruction firms just don't
have enough cash to buy assets. “ARCs are short of capital, until a strategic investor brings in money they
will be starved of funds to buy these junk assets,” (Shukla, Asset reconstruction companies no relief for
banks that look to sell bad loans , 2015) said RK Takkar, ED, Dena Bank. Most ARCs have exhausted all
resources.
Excessive Regulatory Mechanism. There is an excessive regulatory mechanism laid by RBI on ARCs.
ARC is simply a buyer of distressed debt and the sale made by ARC should be a clean transaction where
distressed debt is sold and cash is paid to the lender i.e. banks. “There are no problems with the working
of the ARC on the counts of consumer protection, micro-prudential regulation or systemic risk, therefore
the working of ARCs should be completely unregulated. This clarity of thought has been absent, and
now the working of ARCs has been riddled with poorly thought out RBI regulations.” (Sharma and
Thomas, 2014).
Weak Bankruptcy Process : The capability of ARCs for recovery of debt is defined by the process of
b a n k r u p t c y. T h e l e g a l framework for recovery are
the debt recovery tribunals (DRTs), set up under the
RDDBFI Act, 1993, and the enforcement of security
i n t e r e s t u n d e r t h e As the problem of NPA in Indian SARFAESI Act. Both these
mechanisms have performed banks is growing, there is a huge poorly in resolving NPAs.
Recovery as a percentage of the outstanding amount for
cases filed was at 17 percent possibility of growth of ARCs in India. and 14 percent for DRTs, in
2012 and 2013 respectively. The recovery percentages
were 24 percent and 22 percent under SARFAESI, in
the same period. While RBI has allowed ARCs to take
over the management of the defaulting firm, restructuring under the provisions of the Companies Act is
a time taking process that requires specialised management skills and long term financing, both of which
ARCs may not currently possess.
Incorrect Valuation of Restructured Loans : Most of the restructured loans have interest rate added to
the value of the asset over the past few years. But these assets in fact have lost value even at the cost level.
If an asset was valued at Rs 100 crore five years ago and it had turned bad, banks over the years add the
interest rate due and value them at Rs 150 crore. But potential buyers look at the project as incomplete
and given that it would need fresh investments, say it is worth just about Rs 80 crore. So it is impossible
for the both to meet.
Difficult to sell Immovable Mortgaged : After purchasing the financial assets (Non-Performing Assets)
from the banks the ARCs will step into the shoes of the banks. Even after giving a proper notice the ARC
has to observe a lot of formalities before selling that mortgage.
Economic Recession: Debt restructuring exercises by banks were rendered unsuccessful due to the
prolonged industry and economic recession. One can see under-utilization of capacities already created
during the high growth phase and a large number of unfinished/under construction projects, be it in core
sector infrastructure, hotels or real estate. A large number of metals and mining companies have turned
sick due to a “man-made scarcity” of raw materials such as coal and iron ore in a mineral-rich country.
As a myriad of such issues has been faced by ASC/RCs on the regulatory aspects, duties and taxes, and
capital and finance raising, the SC/RCs envisioned a common forum which would be better suited to
discuss and collectively address pending issues which may range from regulatory concerns to business
related aspects. Keeping the above need in view, SC/RCs have associated to set up a working group
drawing Members from the Licensed SC/RCs to be known as the Association of ARCs in India. The

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Abhigyan Vol. XXXVI No. 1 (April- June 2018) ISSN - 0970-2385

Association is governed by a set of Rules for practice for uniform adoption by the Members and is also
planning to come out with a Code of Conduct for SC/RCs.
Though there are many problems in establishing and running ARC, but the oldest company among the
16 players is ARCIL.
About ARCIL (Asset Reconstruction Company of India Limited)
ARCIL is the first asset reconstruction company (ARC) in India that initiated the business of resolving
NPAs in Indian banks. It commenced business consequent to the enactment of the Securitisation Act,
2002. As the first ARC, ARCIL played a role of colonizer in setting standards for the asset reconstruction
industry in India. It continues to play a proactive role in reenergizing the Indian industry through critical
times.
As the pioneer in setting up of ARCs, ARCIL with more than 50 percent of market share, is in a most
advantageous position as compared to other ARCs. Due to its largest market share, the growth prospects
of the ARCs in India could be judged from the growth of ARCIL. It is the oldest ARCs in operation with
majority stake held by large commercial banks such as SBI, ICICI Bank, PNB and IDBI Bank. It has Rs
11,000 crore worth of assets under management. ARCIL'S sponsors include SBI and IDBI Bank
(holding over 19 percent each), ICICI Bank (13.26 per cent) and PNB (10.01 per cent). In May, 2010
ARCIL was in the process of raising around Rs 2,000 crore from domestic and foreign investors. Of the
total corpus, the company had already mopped up Rs 400 crores from six to seven investors at its first
close.
In 2013-14, ARCIL had acquired assets worth Rs 4,400 crore. Its assets under management stood at
Rs 11,000 crore at the end of 2014-15, up from Rs 6,000 crore three years ago. In the year 2015, the
company acquired stressed loans worth about Rs 2,000 crore from banks and financial institutions
saddled with portfolio of bad loans. A picture of profitability position of ARCIL is mentioned below.
Figure 3
GNPA of Indian Banks and Profitability Position of ARCIL
Year Gross NPAs
March 2009 68,973 1.10
March 2010 84,747 2.80
March 2011 97,922 3.4
March 2012 1,42,300 3.30
March 2013 1,94,000 5.86*
March 2014 2,55,400 8.00
March 2015 3,12,574 67.00
Source : Compiled from various websites and newspaper*Estimated Profit by Analysts
The above table shows the position of GNPAs in Indian banks and the profitability position of ARCIL
from the year 2009 to 2015. Both the GNPAs in Indian banks and Profits of ARCIL are showing an
uptrend from 2009 to 2015. It indicates that there is a direct relationship between the GNPAs in Indian
banks and the profits of ARCIL. Both the Variables i.e. GNPA and Profits of ARCIL are to be used to
find out the correlation.
Testing of Hypothesis
Hypothesis Validation : Conversion of Non-Statistical Hypothesis into Statistical Hypothesis
 HA0 : There is very low degree of Correlation between the growth of NPA in Indian Banks and
profitability growth of ARCs in India.

17
 Asset Reconstruction Companies: An Analysis of Growth (A Case Study of ARCIL)

HA0 : r < 0.25

 HA1 : There is a moderate or high degree of Correlation between the growth of NPA in Indian Banks
and profitability growth of ARCs in India.
HA1 : r > 0.25
For testing of Hypothesis, the correlation between the GNPAs and Profits of ARCIL is to be determined
with the help of the Karl Person's Co-efficient of Correlation.
Calculation of Correlation between GNPA and Profit of ARCIL with the help of SPSS
Results:-
 Number of Pairs of Observations (N) = 7
 Correlation between Amount of GNPA of Indian Banks and Profits of ARCIL (r ) = 0.764
 Correlation is significant at the 0.05 level (2-tailed) – (Manual Calculation is also given)
As the value of r is more than 0.75 it can be said that there is High Degree of Positive Correlation
between the GNPAs and Profits of ARCIL. Hence an inference can be drawn that as the GNPAs
increases there will be more opportunities of growth of ARCs in India.
Testing the Significance of Observed Correlation Coefficient
To test the hypothesis that the correlation coefficient of the population is zero, i.e., the variables in the
population are uncorrelated, the study has to apply the following test :-
r
t=  n–2
1 – r2
• Here t is based on (n-2) degrees of freedom.
• If the calculated value of t exceeds t0.05 for (n-2), d.f., it can be said that the value of r is significant
at 5 percent level.
764
t=0 2 
7– 2
1 – 0.764
Critical value at t0.05 for (7-2) d.f.=2.015
• As the calculated t value i.e. 2.647 > Critical value at t0.05 for (7-2), d.f. i.e. 2.015, it can be said
that the value of r is significant.
Insolvency Code 2016 and ARCs
• The bankruptcy process within the New Insolvency Code is all about how best can creditors recover
their claims on firm that has gone bankrupt.
• The New code is more effective with the primary objective to create a new institutional framework,
consisting of Insolvency and Bankruptcy Board, Insolvency Professional Agencies, Insolvency
Professionals, Information Utilities and Adjudicating authorities.
• It facilitates time bound insolvency resolution process and liquidation with faster debt recovery
mechanism i.e. within 180 days which can be extended by 90 days only.
• It seeks to improve the handling of conflicts between creditors and debtors, avoid destruction of
value, distinguish malfeasance vis-à-vis business failure and clearly allocate losses in macroeconomic
downturns.
• The different laws for different entities make the task of creditors cumbersome. The new code seeks

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Abhigyan Vol. XXXVI No. 1 (April- June 2018) ISSN - 0970-2385

to consolidate the existing framework and create a uniform institutional structure to deal with
insolvency. “The code provides for insolvency professionals as intermediaries who would play a key
role in the efficient working of the insolvency and bankruptcy process.” Wadhwa, 2016.
• The new code will help the banks to control the NPA position and also creates more opportunity for
ARCs as it can strengthen SARFAESI Act. As the bankruptcy process has to be completed within
180 days the banks will approach more to ARCs to purchase their stressed assets as soon as possible
and the ARCs can also make appropriate settlement with the debtors without the intervention of the
courts.
• Again “besides qualified institutional buyers the ARCs can also offer the security receipts to other
institutional investors as specified by the RBI. This will enhance the ability of ARCs to provide
working capital to distressed borrowers.” (Kumar & Piyush, 2016).
Conclusion
As it is observed that the amount of GNPAs in Indian Banks is quite more than the total share capital of
all 16 ARCs, there are more prospects in future even for upcoming ARCs. The positive correlation
between the GNPA and Profits of ARCIL would attract more new ARCs and consequently the problem
of NPAs may be resolved in future. Again the
Department of Industrial Policy and Promotion has
said 100 percent FDI is The government as well as RBI should allowed in ARCs under the
automatic route, this would resolve the problem of
funding for ARCs. So far as take initiative to encourage new entrants the weak bankruptcy process
is concerned the New Code to make investments into the business 2016 could smoothen the
bankr uptcy process in of asset reconstruction of banks to future. But there are still
some critics regarding the reduce and control these NPAs. practical applications of the
new code which would soon be resolved after some
necessary amendments as and when required. Due to
this new code the SARFAESI Act has become
stronger which is a good sign for banks as well as for ARCs. The government as well as RBI should take
initiative to encourage new entrants to make investments into the business of asset reconstruction of
banks to reduce and control these NPAs. On the other hand, sound and successful businesses in this
sector could also contribute more towards the activities of Corporate Social Responsibilities (CSR),
which would be beneficial for the society as well. The best example in this area is ARCIL that performed
numerous CSR activities during 2015-16. It should also be noted that the banks should make
appropriate valuation of assets of mortgaged assets so that the ARCs could recover sufficient amount
from such assets. These measures would bring more opportunities for all ARCs in India.
Limitations of the Study
• It is difficult to consider all the ARCs of India into study hence only ARCIL is selected for the study
as it has the highest net worth but it may be possible that it may not represent the whole scenario of
ARCs in India.
• The New Insolvency and Bankruptcy Code 2016 has been implemented recently hence it may be
difficult to study the visible impact of New Bankruptcy Code on Indian Banking System and ARCs.
Only a few provisions related to the recovery of NPAs of New Bankruptcy Code are analysed to predict
various effects on ARCs.
• The Net Worth of ARCs cannot be taken into consideration as a variable for the calculation of
correlation because the net worth of ARCs is highly volatile in nature hence the profits of the ARCs are
considered to calculate correlation in order to show growth prospects of ARCs in India.

19
 Asset Reconstruction Companies: An Analysis of Growth (A Case Study of ARCIL)

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