Asset reconstruction companies ought to focus on reviving distressed businesses
Subscribe to enjoy similar stories. Asset reconstruction companies (ARCs) in India have long been perceived as vehicles solely for the recovery of bad loans, with limited scope beyond securing delinquent assets. Instead of just being agents that buy non-performing loans from lenders for recovery, ARCs should evolve to their full potential into entities that not only recover assets, but also rehabilitate and turn around distressed businesses.
The regulatory framework adjustments in India can allow ARCs to shift from a reactive stance to a more proactive role in the business ecosystem. With 28 licensed ARCs operating in the country, collectively holding assets under management worth about ₹5 trillion, this sector has grown significantly since the Reserve Bank of India (RBI) first allowed this licensed category under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act in 2002. Despite the presence of these entities for over two decades, ARCs have yet to properly try aiding the revival of distressed businesses.
Their primary focus has remained on the recovery of bad loans, with little attention paid to turnarounds. While this was relevant when ARCs were first mooted, today there is much to gain from early identification of assets turning bad, their purchase by ARCs and subsequent repair for value maximization. With appropriate regulation and access to finance, ARCs can play a transformative role in the Indian financial ecosystem.
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