Economics • Indian EconomyHard
What is the primary economic purpose of establishing 'Asset Reconstruction Companies (ARCs)' under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002?
A. To take over non-performing assets from commercial banks and manage their resolution and recovery efficiently✓ Correct Answer
B. To construct public infrastructure assets using funds raised through tax-free municipal bonds
C. To refinance microfinance institutions operating in rural agrarian districts with high default rates
D. To audit the balance sheets of scheduled commercial banks for compliance with international Basel III norms
💡 Solution & Explanation
Asset Reconstruction Companies are specialized financial institutions that buy non-performing assets from banks and financial institutions to clean up their balance sheets and focus on core lending operations. Distractors mention municipal bond infrastructure, microfinance refinancing, or Basel III audits which belong to different regulatory domains. ARCs issue security receipts to qualified institutional buyers during the acquisition of stressed assets. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act provides the legal backing for their operations.
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