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Rationalization of TDS and TCS

Asset Reconstruction Companies (ARCs) play a critical role in helping financial institutions clean up their balance sheets by acquiring distressed assets. However, as highlighted by Anit, ARCs often face challenges due to limited capital and operational strength, which can hinder their effectiveness in managing and resolving non-performing assets (NPAs).

Key Highlights from TDS and TCS

ARCs help clean up financial institutions’ balance sheets by purchasing distressed and non-performing assets (NPAs).
They enable banks to refocus on lending by relieving them of the burden of bad loans.
ARCs play a key role in strengthening credit flow in the economy by improving banks’ financial health.
Limited access to capital is a major challenge faced by ARCs, restricting the size and scope of asset acquisition.
Most ARCs have a thin capital base, making them reliant on partnerships or external investors for large deals.
Low capital also reduces their negotiation power with banks and asset owners during acquisitions.
Operational inefficiencies hinder ARC effectiveness, especially in managing complex or sector-specific NPAs.
Many ARCs lack skilled manpower such as legal experts, turnaround specialists, and industry analysts.
The resolution of distressed assets requires deep sectoral knowledge, which many ARCs do not yet possess.
Lengthy legal proceedings delay asset resolution, reducing recovery rates and increasing costs.
ARCs often face difficulty coordinating with multiple stakeholders, including borrowers, banks, regulators, and courts.
The Insolvency and Bankruptcy Code (IBC) has helped, but practical implementation challenges remain.
Complex and inconsistent regulatory frameworks often slow down decision-making and resolution timelines.
ARCs also face reputational risks if recoveries are too low or restructuring attempts fail.
Lack of robust secondary markets for stressed assets further limits exit options and value realization.
Delays in policy-level reforms and approvals can obstruct faster recoveries and restructuring.
Government support and incentives for ARC capitalization and capacity building could improve outcomes.
Strengthening ARC capabilities is critical to effectively tackle India’s growing burden of stressed assets and support a healthier financial ecosystem.