The paper examines why asset reconstruction companies, which were instituted in India in 2002 to combat the issue of non-performing assets in banking, have been largely unsuccessful.
Authors
Aditya Sushant Jain, Jindal Global Law School, O.P. Jindal Global University, Sonipat, Haryana, India.
Summary
Asset reconstruction companies were instituted in India in 2002 to combat the issue of non-performing assets in banking. However, they have been largely unsuccessful in combating this problem, facing both structural and market issues.
While the Reserve Bank of India effectively corrected the structural issues by changing the ARCs’ business model, it failed to adequately create a favourable market for investing in ARCs.
This engendered a vicious cycle of pricing mismatch and a lack of investor appetite, rendering structural reforms futile.
Thus, policies must not be made in silos, combating only a specific structural problem without catering adequately to market or demand-side issues, especially in banking and capital markets.
Published in : Economics and Political weekly
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