Crisis in the financial sector in last decade culminated into non-performing assets(NPA). In India high level of NPA's in the banking system had affected the Indian economy in many ways. In turn the banks tend to become risk averse in giving new loans to small and medium companies/firms. This resulted in continued economic and financial degradation of the country. The problem of recovery from NPA's, in the Indian banking system was recognized by the government of India as far back as in 1997, when the "Narsimhan Committee" was appointed. The Narsimhan Committee Report mentioned that the need to reduce the high level of NPAs is very much necessary for continuing the reform process in the banking sector. It was expected that with a combination of policy and institutional development, new NPAs in the future could be lower; however, the problem of the huge backlog of existing NPAs still remained. This problem of NPAs, impinged severally on the banks performance and their profitability. The report envisaged creation of an "Asset Recovery Fund" to take the NPAs off the lender's books at a discount.

Huge numbers of small and medium industries have started thinking either of selling the units/companies or has been closed down forcibly by legal tools. Even the banks and financial institutions were initially happy to see that they have controls over the properties of the NPAs but as time goes, the numbers of the properties of the NPAs has increased in such a way that the banks and the financial institutions have found it difficult to sell the properties of the NPAs. Some of the banks like ICICI, IDBI etc. have formed a company in the name and style of Asset Reconstruction Company ( India ) Limited for keeping the NPAs properties outside from the purview of their regular banking. But still it became difficult for other banks and financial institutions to get rid out of the new difficulties other that there regular business.