NEW DELHI: The finance ministry is examining the idea of setting up an asset reconstruction company (ARC) where toxic assets of all state-run banks can be transferred for quick disposal.

Non-performing assets ( NPA) of state-run banks rose to 4.44% of their gross advances at the end of March 2014, from 2.32% at the end of March 2011. These banks have, so far, been unsuccessful in selling their NPAs through the existing 14 ARCs.
“The new ARC may also be aided by debt recovery tribunals (DRTs) to fast track the sale of assets,” said a senior finance ministry official aware of the deliberations. In a recent presentation to finance minister Arun Jaitely, the department of financial services suggested enactment of a new legislation with a provision for setting up special courts to deal with high value, wilful defaulters.

The top 30 NPAs of public sector banks account for 40.2% of their gross bad loans. “We want to revisit the recovery laws to make them more effective,” the official quoted earlier said.

The finance ministry is also examining a proposal that banks should be allowed to fund acquisition of domestic companies to resolve non-performing loans.

The government is aiming to recover 10% of loss assets this financial year. “We had discussions with the Indian Banks’ Association (IBA) and we will set up six more DRTs for quick disposal of cases,” the finance ministry official said.

The existing ARCs, however, say that setting up a new firm will only add to the already crowded space. “There are 14 ARCs in the country, of which only 5-6 are functional. The government should look at pressuring banks to dispose the bad assets early, which they keep on their books till eternity,” said the chairman of a private sector ARC.