One of the biggest challenges faced by offshore funds wanting to invest in bad loans in India was necessary intermediation by a third party Asset Reconstruction Company (ARC). In most cases, the structure involved the ARC sponsoring and managing an asset reconstruction trust (ART), which acquired such bad loans from the funds received by the issue of security receipts. Setting up an in- house ARC wasn’t feasible in most cases due to high regulatory requirements such as capital adequacy norms – most likely driven by the regulatory intent that ARCs should rather act as asset managers for ARTs than manage assets on their own books. ARCs and SR holders were also not always aligned on the governance and enforcement mechanics of the loans acquired. Offshore investors therefore pressed for a regime that allowed them to invest without the need for intermediation by an ARC.