MUMBAI: With the bad debt resolution through the NCLT route facing inordinate delays, banks are back to asset reconstruction companies (ARCs) to clean up their books and have sold close to Rs 70,000 crore NPAs, mostly retail loans, in the December quarter.
Of the total sales, Rs 44,517 crore were secured corporate NPAs, while Rs 24,814 crore were retail loans. That stress is rising across the system is clear from this as corporate NPA sales were only Rs 28,289 crore in the September quarter. Of the total NPA sales in Q3, close to a third of clean-up sales or Rs 24,814 crore took place in December alone and that too only unsecured retail loans.
As against this, in the September quarter, total NPA sales were only Rs 37,382 crore, which nearly doubled to Rs 69,331 crore in the December quarter, according to the data from ARCs.
Most of these offloaded assets are unsecured, microfinance and retail loans, with the list topped by Bandhan Bank which sold Rs 6,872 crore of stressed loans to ARCs in mid-December.
Of the total Rs 69,331 crore NPAs sold to ARCs, as much as Rs 24,814 crore were retail loans in the quarter, which was only Rs 9,093 crore in the September quarter.
This is music to the struggling ARCs which have been left without much business since the NLCT process gained traction. But Q3 also saw a break from this as secured corporate NAP sales rose to Rs 44,517 crore, nearly double of Rs 28,289 crore in the September quarter, and in Q3 retail loans were only Rs 24,814 crore. ARCs have been focusing on other asset classes since then with the thrust being on stressed retail loans.
And ARCs are expecting more assets to come to them in the fourth quarter of the current fiscal as banks are aggressively cleaning up their balance sheets.
On the other hand, being retail heavy, the recovery rates for banks are also very low averaging 15%. For instance, of the Rs 24,814 crore retail loans sold in December, ARCs issued only security receipts (SRs) worth Rs 3,774 crore, which means an implied recovery of just under 15%.
This is in sharp contrast to the September quarter when total sales were much lower at Rs 9,093 crore but were mostly secured loans and SRs stood at Rs 3,118 crore, which means a recovery rate of close to 35%.
But in the December quarter even corporate NPAs, which are secured assets, are seeing very low recovery rates as for the Rs 44,517 crore of secured corporate NPAs sold to ARCs they paid only Rs 4,220 crore in SRs, which means less than 10% recovery.
In comparison, SRs worth Rs 3,603 crore were issued against the NPAs of Rs 24,814 crore sold in the September quarter, implying a recovery of 13%.
Most of these NPA sales are by private sector banks which, according to latest RBI data, added a whopping Rs 1.21 trillion of bad loans to the opening NPA stocks of Rs 1.29 trillion in fiscal 2025. Private sector lenders have been struggling with higher slippages in their retail books, especially personal loans, microfinance loans and credit cards. That stress is rising across the system is clear from this as corporate NPA sales were only Rs 28,289 crore in the September quarter.
In the reporting quarter, Bandhan Bank led the chart selling Rs 3,165 crore NPAs and Rs 3,707 crore of written-off loans to Arcil and Phoenix ARC, respectively, taking the total to Rs 6,872.36 crore. For the Rs 3,165 crore NPAs sold to Arcil, the bank got only Rs 569.75 crore in SRs and retains a substantial 46.75% stake (Rs 266.36 crore) in the SRs issued against this portfolio, while Arcil holds 53.25% or Rs 303.39 crore.
The written off loans were sold to Phoenix which had a principal outstanding of Rs 3,707.11 crore. The ARC offered only Rs 331.97 crore in SRs with the bank retaining 62.16% or Rs 206.37 crore in the SRs, with Phoenix subscribing to 37.84% or Rs 125.60 crore.
The bank holding higher share in the SR means its recovery is very low at 15-16%.