The past decade witnessed several financial and economic crises worldwide, crippling the economies of the affected countries. In most cases, crises in the financial sector culminate into non-performing assets (NPAs). A high level of NPAs in the banking system can severely affect the economy in many ways. Management and financial resources of the banking system are diverted to resolution of NPA problems causing an opportunity loss for more productive use of resources. The banks tend to become risk averse in making new loans, particularly to small and medium sized companies. Thus, large scale NPAs when left unattended, cause continued economic and financial degradation of the country. This results in a credit crunch and generally signals adverse investment climate. This explains why most countries in the grip of systemic financial and economic crisis have attempted system-wide clean up of NPAs as a part of restructuring of their banking system.

Often, solutions to a system-wide clean up of NPAs result in creation of Asset Reconstruction Companies (ARCs), which are typically publicly/ government owned. ARCs act as debt aggregators and engage in acquisition of NPAs. Thus ARCs take away the distraction by isolating NPAs from the banking system and act as "bad bank". This leaves rest of the banking system free to act as "good bank" and return to equity markets and normal banking business. Governments encourage transfer of assets to ARCs through creation of supportive environment. Governments may also provide special powers to ARCs that are not otherwise available to banking system.
CIN - U65999MH2002PLC134884              Site Best Viewed in IE 7 and above | Optimum Resolution 1024 x 768