Asset reconstruction companies in the private sector space are looking at further fall in their assets under management as measured by security receipts outstanding, to the tune of 4-6% to Rs 1.05 trillion this fiscal after a steeper 15% slide last fiscal as redemption far outpace new asset acquisitions.
Ever since the bankruptcy code got traction among lenders, private ARCs have been facing a bleak future and have moved to managing the bad loan piles in the retail loan space as large corporate loan NPAs were going to the NCLTs.
Private ARCs have seen high security receipts redemptions at over Rs 28,600 crore last fiscal, outpacing acquisitions for the second consecutive year.
“This is because acquisition of stressed assets will continue to trend lower even as redemptions, which have improved in recent years, are likely to remain healthy. Additionally, with the securitisation of NPAs potentially disrupting the industry's status quo, ARCs may have to seek alternative opportunities to drive growth and profitability,” Crisil Ratings said in a note Thursday.
With the latest draft Reserve Bank guidelines issued in April 2025 providing a framework for new products, ARCs must prepare to pivot and adapt to a rapidly changing landscape, it added.
This fiscal, acquisitions by private ARCs will remain subdued. Security receipts issued last fiscal have already come down 29% to Rs 22,000 crore from Rs 31,000 crore in fiscal 2024.
In the corporate segment, this was largely owing to limited opportunities given that gross NPAs for banks in the segment were at a multi-year low of less than 2% as of March 2025, and expected to remain subdued over the medium term.
Also, with the existence of a large stock of written-off corporate loans, private ARCs may not be very competitive here, especially for large accounts, because of competition from the only government-supported ARC (National Asset Reconstruction Company) with its unique guarantee-backed security receipts model. As for retail assets, higher operational intensity due to stringent regulatory needs had reduced the interest among ARCs.
According to Subha Sri Narayanan, a director with the agency, however, retail acquisitions could see some pick-up this fiscal for two reasons as delinquencies in certain retail loan segments such as microfinance and unsecured loans are on the rise. Secondly, the regulations have become more conducive. For instance, there is clarity now on appointing the selling entity as a servicer. This, commonly followed by ARCs, had raised brows at the RBI. Moreover, ARCs can now settle retail loans under Rs 1 crore without the committee of creditors approval, simplifying the process.”
But such acquisitions may not necessarily be AUM-accretive given the relatively higher discount rates in retail pools, especially for unsecured loans. Nevertheless, ARCs will continue to tap both corporate and retail assets based on opportunity and value.