Why in the News?
Taking advantage of the substantial number of written-off loans held by lenders and the government's recovery endeavors, ARCs are seizing the opportunity to acquire these loans.

About Asset Reconstruction Companies (ARCs):

• The Asset Reconstruction Company (ARC) functions as a distinct financial institution that acquires Non Performing Assets (NPAs) from banks and financial institutions, facilitating the process of cleansing their balance sheets.
• This enables banks to focus on their core banking activities. Instead of expending time and effort pursuing defaulters, banks can opt to sell the troubled assets to ARCs at a mutually agreed-upon value.

Legal Basis:

• The establishment of ARCs in India is supported by the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
• The SARFAESI Act streamlines the reconstruction of bad assets, avoiding the need for court intervention.
• Subsequently, numerous ARCs were established and registered with the Reserve Bank of India (RBI), which holds regulatory authority over these institutions.

Capital Needs for ARCs:

• Following the 2016 amendment to the SARFAESI Act, ARCs were mandated to possess a minimum Net Owned Fund of Rs. 2 crores. However, in 2017, the RBI increased this threshold to Rs. 100 crores.
• ARCs must maintain a Capital Adequacy Ratio (CAR) equivalent to 15% of their risk-weighted assets.