The Association of Asset Reconstruction Companies has formally proposed government reforms to fix bottlenecks in Debt Recovery Tribunals and the SARFAESI Act. The industry is seeking measures like the automatic expiry of interim stays to prevent litigation delays. This push comes as recovery data shows these channels remain vital, outperforming the Insolvency and Bankruptcy Code in recent years.
The Association of Asset Reconstruction Companies (ARCs) has formally requested government intervention to address persistent delays within the Debt Recovery Tribunals (DRT) and under the SARFAESI Act. The core of the proposal aims to prevent cases from being stuck in endless litigation due to interim stays, which prevent lenders from taking action against defaulting borrowers.
Proposed Changes to Recovery Rules
The industry body has suggested that any interim stay granted by a tribunal should automatically expire after two months, unless specifically extended. The proposal also advocates for stricter judicial protocols, requiring tribunals to provide a fair hearing to both sides before granting a stay. Additionally, the industry is pushing for pre-deposit conditions for appeals to discourage frivolous litigation that serves only to delay the recovery process. These changes, if adopted, could significantly shorten the time it takes for lenders to take possession and auction collateral properties.
Beyond legal changes, the industry has called for improved administrative efficiency. This includes filling pending vacancies in tribunals within a 15-day window to ensure continuous operations. To modernize the system, they have suggested that tribunals prioritize the use of electronic records from the National E-Governance Services Ltd (NeSL) as primary evidence of debt and default, reducing the burden of manual documentation.
The Importance of Recovery Channels
These proposals come at a time when the efficiency of debt recovery is critical for the banking sector. Data from the 2021 to 2025 period shows that the DRT and SARFAESI mechanisms facilitated the recovery of ₹2.30 lakh crore. This performance slightly outpaced the ₹2.28 lakh crore recovered through the Insolvency and Bankruptcy Code (IBC) during the same timeframe, highlighting the continued relevance of these channels in India's credit ecosystem. This push for reform arrives shortly after the implementation of the Tribunals Reforms Act, 2026, which came into force in August 2026 with the goal of strengthening tribunal oversight.
Sector Challenges and Industry Realities
While these reforms aim to improve speed, the sector continues to face operational challenges. A significant hurdle remains the valuation gap, where banks and ARCs often struggle to agree on the fair price of a stressed asset, which can stall resolution even without legal delays. Furthermore, there is ongoing concern regarding the potential for collusion among a small number of private ARCs, necessitating robust regulatory oversight to protect the broader financial system.
Additionally, the industry is operating under stricter capital requirements. As of March 31, 2026, existing ARCs were mandated to meet a minimum Net Owned Fund (NOF) of ₹300 crore. This higher capital threshold places pressure on smaller entities, and investors should note that the success of these recovery efforts will depend on both the government's response to these proposed procedural changes and the ability of ARCs to manage assets efficiently within the updated regulatory framework.