Asset Reconstruction Companies and Loan Defaulters: Legal Framework and Recovery Mechanisms

 By Ranjana Paul, LL.M. (Business Law) KIIT School Of Law, Odisha.

View Research Paper

Abstract

Indian financial institutions heavily rely on Asset Reconstruction Companies (ARCs) to recover non-performing assets (NPAs) from individuals who default on their loans. These financial institutions purchase distressed loans and difficult-to-recover assets from banks to facilitate asset restructuring while obtaining debt repayment, which helps restore health to economic cycles. Within the Indian financial market, ARCs function as necessary instruments to handle non-performing assets (NPAs). Systematic corporate debt resolution guidelines exist in the 2016 Insolvency and Bankruptcy Code as supplementary to ARCs. As the leading official regulator of ARCs, the Reserve Bank of India ensures strict compliance with regulatory requirements. The paper examines how ARCs handle defaulted loans through their operational structure and also investigates the legal basis and regulatory system defined in the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) regarding ARCs' participation in loan resolution. The manuscript evaluates bad loan recovery strategies adopted by ARCs through debt restructuring and asset auctions, as well as asset securitization methods. This paper examines both the difficulties that affect ARC debt recovery from defaulters and analyzes how these problems affect the health of the banking sector.

Keywords: Asset Reconstruction Company (ARC), loan defaulters, Non-performing assets (NPAs), SARFAESI Act, bad loans.

---

NLR-VA-25432.pdf

Download PDF • 308KB