NEW DELHI: Asset reconstruction companies (ARCs) have urged the Government to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi) to allow a wider range of financial institutions to sell distressed loans to them and enable high-net-worth individuals (HNIs) to invest directly in security receipts, in a bid to deepen India’s stressed asset market.
The Association of ARCs in India is taking up the proposals with the Department of Financial Services (DFS), arguing that the legal framework governing distressed debt needs to evolve in line with changes in the financial system over the past two decades.
“The market has substantially moved away from what it was in 2002 (when Sarfaesi Act came into being). Mutual funds and alternative investment funds have acquired debt to a considerable extent, but the law and regulations have not kept pace with these changes,” Hari Hara Mishra, CEO of the Association of ARCs in India, told The New Indian Express.
Under the existing framework, banks and non-banking financial companies are among the key sources of distressed assets for ARCs. Mishra said the association wants other financial institutions, including mutual funds and alternative investment funds (AIFs), to be allowed to sell their stressed debt to ARCs, enabling them to aggregate loans held by different investors and facilitate faster resolution.
The association has also sought permission for HNIs to invest directly in security receipts (SRs), instruments issued by ARCs to investors against the acquisition of distressed assets. HNIs are not currently recognised as qualified buyers eligible to invest directly in SRs, although they can participate indirectly through AIFs that invest in these instruments.
The proposals require regulatory coordination and, in some cases, legislative amendments. Mishra said the Reserve Bank (RBI) had constituted a committee under Sudarshan Sen in 2021 to review the ARC framework, and some of its recommendations were yet to be implemented.
“The Government has to bring in enabling legislative changes. We are pursuing these with the DFS,” he said, adding that the objective was to expand both the seller base and the investor base.
The ARC industry had outstanding security receipts of around Rs 1.33 lakh crore as of March 2026, marginally lower than Rs 1.34 lakh crore a year earlier. Security receipts are used to measure the industry’s assets under management.
However, the wider pool of stressed assets available for resolution is substantially larger. According to Mishra, India’s effective stressed-asset market, including gross non-performing assets and technically written-off accounts, stood at around Rs 12.2 lakh crore in FY25. This estimate covers banks and excludes additional stressed assets held by NBFCs and housing finance companies.
