Banks and financial institutions had been experiencing considerable difficulties in recovering loans and enforcement of securities charged with them; and the procedure, which was in existence, for recovery of debts due to banks and financial institutions had blocked a significant portion of their funds in unproductive assets, the value of which deteriorated with the passage of time.An urgent need was, therefore, felt to work out a suitable mechanism through which the dues to banks and financial institutions could be recovered without delay.

In 1981, a Committee under the Chairmanship of Sri T. Tiwari examined the legal and other difficulties faced by banks and financial institutions and suggested remedial measures including changes in law and also suggested the setting up of Special Tribunals for recovery of dues of banks and financial institutions by following a summary procedure. In the light of the recommendations of the said Committee, the Recovery of Debts Due to Banks and Financial Institutions Bill, 1993 was introduced in Parliament. As Parliament was not in session, the President, having been satisfied that the circumstances existed rendered it necessary for him to take immediate action to give effect to the said Bill, promulgated the Recovery of Debts Due to Banks and Financial Institutions Ordinance, 1993. Later, The Recovery of Debts Due to Banks and Financial Institutions Bill, 1993 was passed by both the Houses of Parliament and it received the assent of the President on 27th August, 1993. Thus, it came on the Statute Book as the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).