Asset Reconstruction Companies

Asset Reconstruction Company means a company registered with Reserve Bank under section 3 for the purposes of carrying on the business of asset reconstruction or securitization***, or both.

It is a specialized financial institution that buys the Non Performing Assets (NPAs) from banks and financial institutions so that they can clean up their balance sheets.

Asset reconstruction simply means acquisition by an ARC of any right or interests of any Bank or Financial Institution in any financial assistance for the purpose of realization of such financial assistance.


The main features of Asset Reconstruction Companies are listed below –

  • The ARCs are registered under the RBI and regulated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act, 2002).
  • They take over a portion of the debts of the bank that qualify to be recognized as Non Performing Assets.
  • They should have a minimum net owned fund of Rs. 2 crore .
  • The ARCs also have to maintain a capital adequacy ratio of 15% of its risk weighted assets.


The asset reconstruction companies have the following options in their regard-

  1. Change or takeover of the management of the business of the borrower
  2. Sale or lease of such business
  3. Rescheduling the payment of debts – offering alternative schemes, arrangements for the payment of the same.
  4. Enforcing the security interest offered in accordance with the law
  5. Taking possession of the assets offered as security
  6. Converting a portion of the debt into shares


In India, ARCs function under the supervision and control of Reserve Bank of India and perform the function of securitization and reconstruction of financial assets. They acquire the bad debts/NPA accounts from Banks and Financial Institutions & then take special measures to recover the money owed. If they are able to recover the money, they make a profit, if not they lose the money.


  • In the Budget 2021-22, Asset Reconstruction Company (ARC) have been proposed to be set up by state-owned and private sector banks, and there will be no equity contribution from the government.
  • The ARC will have an Asset Management Company (AMC) to manage and sell bad assets to resolve stressed assets of Rs. 2-2.5 lakh crore that remain unresolved in around 70 large accounts.

Accounting & Finance for Banking

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