Non-Performing Assets in Indian Banking and the Role of Asset Reconstruction Companies

Reform in the banking industry in India is not anything new. It is true that the financial sectoral reforms have resulted in giving a new direction in the industry because of the significant impact that it led to. In recent times, following the financial crisis of 2008 and the economic slowdown worldwide since then, including a slump in the domestic country, non-performing assets are in the focus. It has severely impacted the industry performance because of the need for higher provisioning. To be more specific, the effect on the public sector has been more severe. The policy regulator and top management of banks have expressed their worries since it is affecting the stability of the banks.

In this regard, it can be mentioned that in spite of the SARFAESI Act passed in the beginning of the last decade, the problem of rising non-performing assets (NPAs) has not been arrested yet to a substantial extent in spite of the setting up of the asset reconstruction companies (ARCs) in the country. The present study focuses not only on the NPA trends in the sector during the period 2005-06 to 2014-15 but also critically analyses the role of the ARCs and the issues pertaining to them.