Executive summary

The asset reconstruction industry is critical for resolving stressed assets and invigorating economic growth. If left unaddressed, stressed assets can lose economic value, leading to a vicious cycle of destruction of labour and capital resources, thereby increasing the cost of their resolution. The disposal of non-performing loans (NPLs) to asset reconstruction companies (ARCs) by way of issuance of security receipts (SRs) can strengthen balance sheets in thebanking sector, provide liquidity and reduce management costs. ARCs bring efficiency, expertise and financing to the resolution process, thereby preserving the value of stressed but viable businesses. The longer a business is in distress, the more its value declines, making timely resolution crucial.

We did an in-depth, objective study of SRs worth ~Rs 34,000 crore across over 330 trusts, which indicates a cumulative recovery rate of 75-80% for ARCs for fiscal 2026, a good 1,500 basis points (bps) rise from the previous fiscal. There are several reasons for this.

First, the higher proportion of low-vintage assets in new acquisitions by ARCs, driven by regulatory flexibility for acquisition of special mention accounts (SMAs).

Second, the healthy performance and outlook of key infrastructure sectors - real estate, thermal power and roads.

Improvement in these sectors and acquisition of operationally viable assets have enabled ARCs to arrive at restructuring plans, leading to higher recoveries in comparison to other modes of resolution such as the Insolvency and Bankruptcy Code (IBC).

Third, ARCs have been selectively acquiring corporate as well as retail pools. The retail pools, both secured and unsecured asset classes, have seen an increase in redemption rates, driven by acquisition of low-vintage accounts and healthy settlement rates across asset classes.

India’s resolution landscape has witnessed ARCs continuing to favour restructuring as their primary strategy. In contrast, IBC-based resolutions have struggled to gain significant traction owing to sluggish recovery rates and prolonged timelines. Moreover, after the recent Supreme Court judgment invalidating actions taken under an IBC-based resolution, procedural compliance by all stakeholders will remain in focus.

Multi-year low gross non-performing assets (GNPAs) have slowed the supply of stressed corporate assets for ARC acquisition, resulting in recoveries improving over a sluggishly growing base.

As regulations continue to evolve for the sector, key drivers such as regulatory reforms, including flexible settlement policies and strengthened governance frameworks will play a pivotal role in shaping the future trajectory of ARCs.