Asset Resolution Companies have been set up in various countries internationally as an answer to the global problem of bad loans (NPAs or non performing assets). An approach to manage such bad loans on a concerted, central level, through a centralized agency or agencies is called centralized approach. ARCs arise out of this approach – that is, a centralized agency for resolving bad loans.
What are the advantages of an ARC approach?
Centralization of bad loans in one or a few hands and therefore more effectiveness
Banks are left with cleaner balance sheets and do not have to deal with problem clients
Regular banking relations with the group are not affected. Because it deals with a larger portfolio, it can mix up good assets with bad ones and make a sale which is palatable to buyers