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|Explain about the contribution of asset reconstruction companies to reduce NPA’s in public sector banks.|
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The Asset Reconstruction Company which crucial role in helping the bank to come out of the NPA crisis. This Phenomenon process is known as a prompt corrective action framework. Controlling and managing non- performing assets across the banking industries of the world is a burning issue. Asset reconstruction is a unique of financial institution that buys the debtors of the bank at a mutually agreed value and attempts to recover the debts. It can take over only secured debts which have been classified as a non performing asset. The customer base is extremely large, so there is always more risk involved in lending as part of financial sector reforms following the recommendations of the committee on the financial system. It helps the bank to focus on their routine banking activities and save their time chasing the defaulters for recovery.
In India, the problem of recovery from NPAs was recognized in 1997 by the Government of India. Challenges which hamper the ARC's ability to function efficiently are; No availability of funds to meet the NPA, lack of necessary professional skills and expertise in managing recovery, Stringent RBI rules and regulations hamper the ARC's ability to work independently, and there is a price expectation mismatch between selling and buying ARC.
Agreement on an acceptable valuation of the bad assets will also create a challenge for ARC. It performs acquisition of financial assets, change or takeover of management, and rescheduling of debts. It is most necessary for a robust and a realistic approach to pricing between the banks and ARCs. So the ARC has a very vital role to play in the current scenario and it should be strengthened to solve the massive NPA problem.