Assets reconstruction companies, which earn profits by buying and recovering the distraught bank loans, now see a possibility of permission of higher investment being granted by the government and thus deal with the constraints in capital faced by these companies.

Increasing FDI in ARCs from the current 49%to 100% is being worked upon by the central bank and the Ministry of Finance which plans to make some supervisory variations in the SARFESI Act which is law that governs security and refurbishment of financial assets. The same is also being discussed with the RBI.

The functioning of an ARC involves the formation of a trust wherein the qualified institutional buyers (QIB) contributes money which is used to buy the distressed loan and in return a certificate of stake in distressed loan is supplied.

These are facing set-backs as collecting money becomes difficult owing to the preservation of 15% capital adequacy ratio. This concept is on seeing success due to unwillingness of the enterprises to keep the distressed loans in their records for a long time with the present unpaid loan of about one lakh sick SMEs to be more than 3,600 in the end of 2009.