NPA Market In India

Banks are the backbone of any country in so far as its upward economic developments are concerned. A well-knit Banking System supported by proper regulatory mechanism is inevitable for the economic development of a Country. Banks are intermediaries between the depositors and borrowers. It gives interest for deposits and collects interest onloans to meet the commitments of the depositors. The chain breaks when borrowers fail to repay the principal and interest as per the agreed terms which lead to decline in profitability of banking system and increase in stressed assets. In view of the rise in NPAs in the system and risk to the banking system, the Narasimham Committee I in 1991 had recommended the creation of an Asset Creation Fund to which public sector banks would transfer their non-performing assets with certain safeguards. However, the recommendation was not accepted, and banks have been internally dealing with their NPAs. Debt Recovery Tribunals (DRTs) were established in 1993. A scheme of Corporate Debt Restructuring (CDR) was introduced in 2001 outside the purview of BIFR. The SARFAESI Act was passed in 2002 paving way for the creation of Asset Reconstruction Companies (ARC). Currentlythere are24 ARCs in India. These Securitization Companies/Reconstruction Companies (SC/RC) are regulated by the Central Bank of Country, RBI. RBI closely monitors the SC/RC and their activities. These ARCs operate as per the provisions of the SARFAESI Act. They buy/acquire financial assets from banks and other financial institutions, and resolve them.The amount of assets acquired by the ARCs has displayed a consistent upward trend. Selling NPAs to ARC is  an efficient way of dealing with the bad loans as it allows the banks to focus on their core activities and helps in realising the blocked assets. The acquisitions are done either directly on the books of the ARC or through Trusts created by the ARC which raise funds for acquisition of assets by issuing Security Receipts (SRs).ARCs are required to subscribe to at least part of these SRs to the extent specified by RBI and the balance are subscribed by Qualified Institutional Buyers.

Details of Financial Assets Securitised by ARCs

  End-June 2015 End-June 2016 End-June 2017 End-June 2018
Amount in ₹ billion
Book Value of assets acquired   1,744 2,377 2,627 3,306
Security Receipts issued   536 790 939 1,203
Security Receipts Subscribed by   - - - -
a. Banks 441 651 777 960
b. ARCs 73 114 142 202
c. FIIs 1 3 3 5
d. Others(Qualified Institutional Buyers) 21 22 18 37
Amount of SRs Completely Redeemed   62 72 74 88



For the purpose of recovery Banks/FIs have multiple routes. They may proceed for action under SARFAESI Act, Debt Recovery Tribunals, Lok Adalats or recently the Insolvency & Bankruptcy Code.

Our Sponsors