Role of Asset Reconstruction Companies (ARCs)

I wish to share my views on Asset Reconstruction Companies operating in India, their purpose and approach. ARCs have not only failed in our country but also damaged the economy.

Asset Reconstruction Companies (a dangerous nexus )

When an entrepreneur dreams of setting up new business or industry he is the first to put in his money and borrow from the bankers by further giving his properties as security . By the time he set up the unit he is exhausted and left with nothing except his dreams . He put in efforts 24*7 every day for end number of years. Till he honours all the commitments he is respected by the lenders. Interestingly, he is rather instigated to borrow more and more by the bankers. It is this push in most of the cases which leads to NPA. Bankers in the process to achieve the targets and get promotions quickly lend money so loosely that the seeding of NPA is done at that moment itself . Later the officers get promotion and move career ladder fast. The situation becomes so volatile that any mistake by the entrepreneur can collapse the whole organisation. In business mistakes happen and the result is defaults in repayment of loans and interest. By the time account gets NPA the officer reached to untouchable heights. On the other hand borrower is pushed to corner now and does not get any help from any side . He is cursed, abused, insulted and pushed to the corner to such an extent that he is branded as thief. Gradually legal process starts and he is so much stressed that instead of focusing on business he starts fearing and try to detach himself from the business and take various course of action to avoid the repayment. By this time he is branded a defaulters or fraudster. He is threatened by investigations and CBI and so on..the news and notices are published in newspaper along with his name, photo and so on. Instead of running business this poor business man gets stuck up in taking various actions to safeguard himself and his family interests.

The process in the banks and lending institutions starts to finish off the promoter. He is never helped to revive the business . In fact sometimes it is felt that the some bankers wait for this situation to happen so they can en cash this moment for their benefits. Please remember in most of the cases loans sanctioning officers are moved by this time and new officer is not interested in reviving such units as there is no benefit to him. Then new phase starts and the real game is on. Bankers clean up the balance sheet and auction the loans to Asset Reconstruction Companies ( ARCs).

Here I would like to mention about ARCs , their purpose and current status . ARCs are basically formed under RBI guidelines to help in revival, reconstruction or resolution to a company which in stress and defaulting in repayments. ARCs were expected to handhold such companies to help them in standing again and also help the society to survive. Currently 14 ARCs are operating in our country and have acquired loan portfolio of more than 1.00 Lac crore rupees. Once the loan account is assigned to an ARC, no question is asked to the bankers and they are relieved from any responsibility. Due to this reason the bankers use this tool so they can safe guard their personal interest. Once you assign the loan to ARCs, any settlement will be by the ARCs and hence no question asked. Also there is there is a cartel who captured maximum loan portfolios. The basic purpose of these ARCs is no where near to revive the units , they go for quick money which is into disposal of the assets. In the process they also become lenders with interest charging more than 24% p.a. These ARCs are minting money at the cost of our economy. Poor businessman gets crushed under their butcher activities and can not survive for long. He losts every thing and top of that branded as defaulter whom no one can lend money. His name appears in CIBIL list and becomes untouchable. ARCS have cornered huge money which is directly indirectly under nexus with the Banks.

There should be detailed investigation into :

a)  Role of ARCs, Loans assigned to them, how many units they really helped in reviving, how many assets they have disposed off and what is their earning in last 5 years.

b) Why banks should not help the units to revive? When they lend, they appraise the unit then how it happens that account gets NPA . The end of an unit leads to unemployment of large number of poor people who become victim of all these nexus.

C)Why the responsibility of bad loans is not put on the complete chain of officers who have sanctioned the loan and monitored through various system and procedures. Why they should not be made responsible for revival.

d)  The investigation shouldn't be of the entrepreneur only but also the banker.

C P