Mumbai: The proposed Asset Reconstruction Company (ARC) for taking over bad debts is not a disguised mechanism to put public money into the balance-sheet of banks, but one that was designed to play a vibrant and energetic role in handling distressed debt, Finance Minister Yashwant Sinha has said.

Explaining the concept of ARC, Sinha said: We are not engaged in window-dressing. The ARC will strike at the root of the structural problem by consolidating debt that is scattered, engaging in innovative corporate finance (such as mergers or sale of brands or plants), injecting new capital, converting a distressed company into a profitable one and even taking it for an IPO.

Addressing a gathering of bankers at the Banking Summit 2002, organised by the Confederation of Indian Industry here, Sinha said ARC is partly a question of specialisation, and certain entities, banks and non-banks, can build a specialised competence in processing distressed debt that other creditors can choose to outsource the handling of distressed debt by selling of loans or bonds to these specialists.

Referring to priority-sector lending, the finance minister said the continuing social responsibility of a bank to lend 40 per cent towards the priority sector will continue. I believe that it will be undesirable for banks to veer away from this social obligation. It is not entirely a bad business proposition as the self-help group experience has shown us.