NEW DELHI: India’s financial system has become stronger and more stable due to the growing role of asset reconstruction companies (ARCs), M Nagaraju, Secretary, Department of Financial Services, said on Monday.
“ARCs play a major role in acquiring non-performing assets (NPAs) from banks and restoring confidence in the banking system,” he said. “These institutions help banks clean up their balance sheets, improve liquidity and focus on fresh lending activities that support economic growth,” he added.
He noted that India’s financial sector has undergone major transformation over the years with continuous efforts towards transparency, accountability and financial stability.
“The government and regulators have consistently acted in the national interest to address stressed assets and maintain financial discipline,” Nagaraju stated.
Highlighting recent developments in the sector, Nagaraju said stronger institutional cooperation, improved frameworks and better networks have placed the industry in a stronger position for future growth.
He also thanked stakeholders, including leadership teams and partner institutions such as Union Bank of India and Bank of India, for their support and cooperation.
The DFS Secretary said ARCs provide multiple mechanisms for debt resolution, including debt restructuring, enforcement of security interests and debt-to-equity conversions.
He added that ARCs complement the Insolvency and Bankruptcy Code (IBC) by offering an alternative and often faster route for resolving stressed assets. At the same time, Nagaraju acknowledged that the ARC sector continues to face challenges such as limited capital availability, regulatory overlaps, prolonged litigation and valuation mismatches between banks and ARCs.
He said these issues often delay recovery processes and reduce transaction opportunities. He said both the Government of India and the Reserve Bank of India have taken several measures to strengthen the ARC ecosystem.
“The RBI has allowed up to 100 per cent foreign direct investment in ARCs through the automatic route, while foreign portfolio investors have also been permitted to invest in security receipts issued by ARCs,” Nagaraju mentioned.