Distressed Asset Investing in India (2026): How It Works, Routes & Risks

Distressed asset investing is the practice of buying financially troubled companies, loans, or assets — usually at a discount to their underlying value — with the aim of earning above-market returns once they are turned around, restructured, or resolved. In India, most distressed investing happens through four routes: acquiring non-performing loans from banks, participating in resolution under the Insolvency and Bankruptcy Code (IBC), 2016, enforcing security under the SARFAESI Act, 2002, or buying assets from Asset Reconstruction Companies (ARCs) including the government-backed NARCL. Success hinges on an accurate, independent valuation of what the asset is really worth.

A distressed asset is one trading below its intrinsic value because the owner is in financial or operational trouble — typically an NPA, a company in insolvency, or an over-leveraged business. Investors buy the equity, the debt, or the underlying asset, restructure it, and profit from the recovery. The main risks are legal delays, uncertain recovery timelines, and misjudged valuation.

A distressed asset is a company, security, loan, or physical asset available below its intrinsic value because the owner is under financial distress (unable to service debt) or operational distress (mismanagement, sector downturn, stalled projects). The discount is the opportunity — and the risk is that the distress is deeper than it looks. This is why independent business valuation is the foundation of any distressed deal.

• Non-performing assets (NPAs) — loans overdue by 90+ days, sold by banks and NBFCs at a discount.
• Companies under IBC — corporate debtors in the Corporate Insolvency Resolution Process (CIRP), acquired by a successful resolution applicant.
• SARFAESI-enforced assets — secured assets that lenders auction to recover dues without court intervention.
• Distressed securities and debt — bonds or loans of stressed issuers traded in the secondary market.
• Stressed real estate and stalled projects — properties held up by funding gaps, litigation, or approvals.

1. Buying NPAs directly from lenders. Banks offload bad loans to clean their balance sheets; investors buy the debt and pursue recovery.
2. Resolution under the IBC as a resolution applicant. Investors submit a resolution plan for a company in CIRP; the Committee of Creditors approves the best plan. This is where valuation under the IBC — the fair value and liquidation value of the debtor — is decisive.
3. SARFAESI enforcement and auctions. Secured creditors (or investors who buy the debt) enforce security interest and sell the asset.
4. Through ARCs and NARCL. Asset Reconstruction Companies aggregate NPAs and resolve them; investors can co-invest or buy security receipts.

Whichever route you take, a deal advisory partner and thorough due diligence determine whether the discount is real or a trap.

India’s stressed-asset framework has matured from the older Debt Recovery Tribunals (1993) and SARFAESI (2002) into an IBC-led, creditor-in-control model. Key 2026 markers:

• NARCL, India’s government-backed “bad bank” (set up in 2021 to aggregate large NPAs of ₹500 crore and above), had acquired 33 borrower entities with aggregate debt exposure of about ₹1.66 lakh crore as of March 2026, moving toward its ₹2 lakh crore target.
• In FY 2025-26, NARCL recovered about ₹4,364 crore — roughly 70% of its cumulative recoveries — with total recoveries near ₹6,345 crore, over 48% of acquisition cost.
• IBC recovery rates have been under pressure, falling to around 28% in FY 2023-24 (from ~40% the year before), with the average CIRP taking close to 700 days to close — a reminder that timelines and legal complexity are the real risks.
• RBI has proposed a market-based securitisation route for stressed assets as an alternative to the ARC-only model, which could widen investor access if finalised. (Confirm current status before citing.)

The takeaway for investors: the opportunity is large and institutionalising, but returns depend on disciplined valuation and realistic recovery assumptions — not headline discounts.

In a distressed deal you are pricing uncertainty. Two numbers matter most, especially under the IBC:

• Fair value — the estimated realisable value in an orderly transaction.
• Liquidation value — the estimated realisable value if the assets were sold on the insolvency commencement date.

Getting these wrong — in either direction — means overpaying for a sinking asset or losing a viable one to a rival bid. Industry and macro conditions also swing the number, which is why the impact of industry and economic factors on business valuation is central to distressed work. Where a scheme or contested bid is involved, a fairness opinion in an M&A transaction protects the board and stakeholders.

• Legal and title risk — pending litigation, disputed security, and unclear ownership.
• Recovery-timeline risk — CIRP delays can stretch to two years, eroding returns.
• Valuation risk — hidden liabilities, goodwill on the balance sheet that may be impaired, and optimistic turnaround assumptions.
• Operational risk — disgruntled employees, deferred maintenance, lost customers.
• Sponsor risk — backing a resolution applicant without a credible turnaround track record.

For a deeper India-specific view, read our companion piece on the implications of investing in distressed assets in India.

1. Confirm the distress type — financial vs operational — and whether it’s fixable.
2. Commission an independent valuation (fair value and, if relevant, liquidation value).
3. Run legal and financial due diligence; stress-test the turnaround plan.
4. Choose the route — NPA purchase, IBC resolution plan, SARFAESI, or ARC/NARCL.
5. Structure the funding, including any debt syndication or equity financing.
6. Execute the restructuring with clear milestones and monitoring.

Considering a distressed acquisition or resolution plan?

RNC’s IBBI-Registered Valuers and Distressed M&A Advisory team deliver fair-value and liquidation-value reports, due diligence and deal structuring that stand up to lenders, the CoC and the NCLT.

→ Book a consultation

Related reading :

• Implications of Investing in Distressed Assets in India
• Mandatory Valuations for Financial Statement Compliance
• The Impact of Industry and Economic Factors on Business Valuation
• Valuation for Fairness Opinion in an M&A Transaction
• Challenges in Turnover-Based Company Valuation

1. What is distressed asset investing?

Buying financially or operationally troubled companies, loans or assets at a discount, then restructuring or resolving them to earn a return.

2. How can you invest in distressed assets in India?

Through four main routes — buying NPAs from banks, submitting a resolution plan under the IBC, enforcing security under SARFAESI, or investing via ARCs and NARCL.

3. What is the difference between fair value and liquidation value?

Fair value is the realisable value in an orderly sale; liquidation value is the realisable value if assets were sold on the insolvency commencement date. Both are required in an IBC process.

4. What are the main risks in distressed asset investing?

Legal and title disputes, long recovery timelines, misjudged valuation and hidden liabilities, operational decline, and backing an unproven sponsor.

5. Why is valuation so important in distressed deals?

Because you are pricing uncertainty — an accurate independent valuation is the difference between a discount and a loss, and it is mandatory in IBC resolutions.

6. What is NARCL?

The National Asset Reconstruction Company Limited, India’s government-backed “bad bank” set up in 2021 to aggregate and resolve large NPAs of ₹500 crore and above.