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How Do Banks Benefit From An Asset Reconstruction Company In India?

By Author: Nidan Narkhade
Total Articles: 18

What is the major issue for any banks that result in their balance sheet showing losses? Amongst the several bottlenecks, a major one is the rising NPAs (Non Performing Assets). Now, how do these NPAs add up over a period of time. These result from the series of defaulters who go bankrupt and are unable to pay back to the banks.

However, banks have realized their follies of the past and generally do not spend lot of efforts in following up with these defaulters. Based on certain criteria, they often put their (defaulters) account on sale to any asset reconstruction company in India. Now, what exactly is an asset reconstruction company? As the name suggests, an asset reconstruction company ‘reconstructs’ the NPAs. Their expertise lies in effectively turning these NPAs of banks into highly productive assets.

With the asset reconstruction firms coming into picture, the banks are able to save plenty of time and money, which would otherwise have to be spent on just recovering the non-performing assets. Instead they can focus on identifying new business opportunities as well as improving their efficiency in routine operations.

Since the ARCs (Asset Reconstruction Companies) purchase the NPAs at a negotiable price from the banks, the responsibility / ownership of the NPAs also gets transferred. This enables the banks to have healthy balance sheets at the end of every financial year, without showcasing many liabilities.

But, how do the ARCs manage to purchase bad assets? They do so by issuing security receipts, debentures or bonds for the purpose of fund raising. ARCs have to face the challenge of handling ambiguity in relation to NPA valuation. They also have to be really patient with the extremely long processes that are in place to convert the non-performing assets into performing ones.

With a financial firm like JMFL, the tasks of realignment as well as restructuring is made easy with regards to asset reconstruction. They possess a highly qualified team of professionals who have been doing related activities for several years and helping out banks as well as ARCs.

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