With the rise in Non Performing Assets of Public sector banks, Asset Reconstruction Companies (ARCs) have gained importance now a days. Various Public Sector banks are having stakes in ARC for example the largest ARC, Asset Reconstruction Company (India) Limited is sponsored by State Bank of India and includes stake of IDBI and PNB.
Now the government has asked the public sector banks to reduce stake in ARCs because there is conflict of interest in owning interest in ARCs. Government is serious on resolving the issue of stressed assets of the public sector banks and have taken various initiatives including formation of Banks Board Bureau.
since, 100% FDI has been allowed in ARCs through automatic route, banks can offload their stakes to foreign partners and some specialized players can enter in the ARCs.