Asset Reconstruction in Banking Industry

The concept of Securitization can be identified as one of a major financial service. In general banks NPA gave a lot of trouble to banks in the way that banks could not sell the pledged asset to recover their money after defaults without court order. Indian banks have been plagued with the problem of NPA since 2006. The problem started when the banks started lending to heavy industries such as metal, mining sectors and to infrastructure development. Since the projects funded before were completed on time, the banks assumed that the future projects would also be completed at the same pace. The world economic slowdown of 2008 casted their effects on the Indian economy making the growth slow and reducing the demand. The projects started to miss deadlines and the banks showed least interest to restructure them. The promoters too inflated the cost of capital over a period of time which was left unchecked by the banks. However, this scenario changed with the introduction of SARFAESI Act 2002, where banks were authorized to recover money by selling pledged asset without any court intervention. The aforementioned Act also paved the concept for securitization. In this article, the primary focus is laid on understanding the workings of such ARC along with its performance in the Indian banking sector and the key challenges faced by such companies..