Definition
Asset Reconstruction Company (ARC)
An Asset Reconstruction Company buys bad loans from banks at a discount and works to recover or restructure them, helping clean up bank balance sheets.
An ARC is an RBI-regulated entity that purchases non-performing assets from banks, paying partly in cash and partly through security receipts, then attempts recovery, restructuring or sale of the underlying assets. This lets banks offload stressed loans and focus on fresh lending.
India also experimented with a 'bad bank' structure combining a national ARC with an asset management company to handle large legacy bad loans. ARCs are part of the toolkit, alongside SARFAESI and the IBBI process, for resolving the bad-loan overhang.
Related terms
- IBBIIBBI is the Insolvency and Bankruptcy Board of India, the regulator that oversees the insolvency resolution ecosystem under the Insolvency and Bankruptcy Code.
- Twin Balance Sheet ProblemThe twin balance sheet problem describes the simultaneous stress on over-leveraged corporate borrowers and the banks burdened with their bad loans.
- Securitisation and SARFAESIThe SARFAESI Act empowers banks to seize and sell the collateral of defaulting borrowers without court intervention to recover dues.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.