New Delhi, June 10: ICRA on Tuesday cautioned that Asset Reconstruction Companies might not be effective in tackling the non-performing assets and said a bank-based bad debt mode was preferable as the ARCs may have to deal with large amount of bad debts, which were difficult to restructure. "International experiences suggest that in dealing with old NPAs, the success of AMCs has been supported by special circumstances, which a developing country (including India) is unlikely to have," ICRA said in its latest review on Money and Finance.

India should opt for decentralised creditor-led strategy and adopt policies to create an environment more conducive to such a strategy, it said adding, pre-conditions for successful bank-based restructuring were already there in the country.
The recovery process was in for a drastic change with the Securitisation Act, as banks were empowered to take stringent steps for fast and trouble-free recovery, ICRA said.

Doubting the efficiency of the AMCs, it said though such entities were owned and funded by some commercial banks and Government was not involved directly, "this does not ensure that the management will be efficient."
Noting that the proposed ARCs would be superior to banks in the task of resolving NPA "remains a mere assumption", ICRA said "the formation of a permanent ARC is never advised as this may create significant moral hazard for banks." Bureau Report