Asset reconstruction companies (ARCs) are looking to the forthcoming Budget for sharper tools, cleaner processes, and tax structures that genuinely reward risk capital.
Their expectations span taxation, ease of doing business, reforms in charge registration, judicial strengthening, and the long‑pending rollout of personal insolvency provisions—each aimed at accelerating recoveries and boosting investor confidence.
“Some of the measures like pass‑through status for alternate investment funds (AIFs) in respect of income from investment in security receipts (SRs) issued by ARCs, and modification of charge in respect of loans assigned to ARCs without requiring the NPA borrower’s signature, have already been examined and recommended by the RBI Committee on ARCs in 2021. We expect these to be suitably taken up in this budget,” said Hari Hara Mishra, CEO, Association of ARCs in India.
Priority Taxation Reforms
Taxation remains the top priority for the industry. ARCs want the government to grant pass‑through status for income earned by AIFs from SRs. Currently, such income is treated as business income at the AIF level and taxed at the highest slab of 42.74%.
ARCs argue that this structure penalises investors who already take on high‑risk distressed‑debt exposure. Allowing pass‑through treatment—where income is taxed directly in the hands of investors—would improve post‑tax returns, attract more capital, and deepen the stressed‑assets market.
With greater liquidity flowing into SRs, ARCs believe revival prospects for distressed companies would improve meaningfully.
“Taxation is the single biggest hurdle for ARC investments today. Unless SR income is taxed at the investor level—like other asset classes—large AIFs will continue to stay away from ARCs,” said the CEO of a bank‑sponsored ARC.
Ease of doing business is the next major demand. When banks sell NPAs to ARCs, the assignment of underlying security interests is already recorded electronically with CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest).
Yet, state‑level registration of assignment agreements remains mandatory, forcing ARCs to register the same transaction multiple times across states—particularly for retail loan pools. This duplication adds cost, delays enforcement, and slows down resolution timelines.
ARCs want the Budget to eliminate this redundant requirement, arguing that a single central registration should suffice.
Charge Modification Hurdles
A long‑standing operational hurdle relates to modification of charges in favour of ARCs. Under the Companies Act, 2013, any change in charge requires the borrower to sign and file the CHG‑1 form within 30 days. In NPA cases, borrowers are often uncooperative, leading to delays, non‑compliance, and inaccurate charge records.
ARCs are seeking an automatic mechanism for charge transfer upon assignment—without requiring borrower consent. They argue that once the lender has legally transferred the asset, the charge should move seamlessly to the ARC to reflect the true creditor on record.
“A valid charge already exists with the selling bank, so requiring the borrower’s signature again only delays filings and adds needless cost. The Budget must allow seamless charge transfer from banks to ARCs without borrower intervention,” said a CEO of an ARC.
Citing an example, he explained that when a bank sells debt to an ARC, the charge created by the bank is already valid. The bank is merely transferring this charge to the ARC, raising the question of why the borrower’s signature should be required again. Removing this step, he said, would avoid unnecessary delays.
Strengthening Judicial Efficiency
Judicial efficiency is another area where ARCs expect reform. They want strict adherence to the statutory requirement of depositing 50% of the debt amount for appeals before the Debt Recovery Appellate Tribunal (DRAT), which they believe will curb frivolous litigation and reduce delays.
The industry also wants Debt Recovery Tribunals (DRTs) to shift to a two‑member bench—one judicial and one technical—mirroring the NCLT (national company law tribunal) model to bring commercial expertise into complex recovery cases.
ARCs are further pushing for the long‑pending notification of personal insolvency provisions under the IBC (Insolvency and Bankruptcy Code). With rising stress in unsecured retail loans—especially among young borrowers—they argue that individuals deserve a structured mechanism for resolution and a fresh start, just as corporates and MSMEs do.
Notifying these provisions would help lenders resolve retail NPAs more efficiently while preventing long‑term financial exclusion of borrowers.
If the Budget delivers on these expectations, ARCs believe it could strengthen credit markets, improve investor sentiment, and support the broader stability of the financial system.