The Reserve Bank Of India (RBI) stated in a latest update yesterday that asset reconstruction companies (ARCs) are important players in the asset resolution mechanism in India. Unlike many other countries that experimented with a public sector model of asset management companies marked by their existence for a pre-defined period following banking crises or crises-like situations, India introduced ARCs as private sector institutions as part of its ongoing financial sector reforms.
Notwithstanding the increase in the number of ARCs over time, there has been a concentration in the ARC industry in terms of the assets under management, and the security receipts (SRs) issued. Despite the policy push to broaden and enhance the capital base of these companies, they have remained reliant primarily on domestic sources of capital, particularly banks. The cost of acquisition to book value ratio, although posting a slow rise, remains low and is marked by wide variations across ARCs and economic sectors. The ARCs have predominantly resorted to rescheduling of payment obligations as a method of resolution. There is considerable concentration of older SRs in the books of the ARCs.
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