ARCs' bad loan portfolio to touch Rs 1.6 trillion by FY25, says CRISIL

The assets under management of Asset Reconstruction Companies (ARCs) are expected to grow at eight to nine per cent to touch the Rs 1.5 trillion mark by March 2024. It may expand at a slower pace of 5-8 per cent in the next financial year (FY25), where the asset base could reach the Rs 1.6 trillion level, according to the CRISIL-Assocham report.

AUM stood at Rs 1.38 trillion at the end of March 2023.

In FY23, the industry growth was at 17 per cent, largely driven by a large transaction of stressed assets being acquired from a bank by an ARC. However, excluding the same, growth was modest at seven per cent.

The report said the growth in the future would largely be driven by higher acquisitions, though capped by quicker resolutions expected in retail assets. Acquisitions by the government-supported National Asset Reconstruction Company Ltd (NARCL) are also expected to gather pace going forward, thus supporting overall industry AUM.

Opportunities in the Indian stressed assets market are intrinsically linked to the asset quality of banks and NBFCs (including housing finance companies). The significant growth in the AUM of ARCs in the past came during a period of sharp rise in Non-Performing Assets (NPAs) in the banking sector, especially in the corporate segment — Gross Non-Performing Assets (GNPAs) of banks peaked at 11.2 per cent as of March 31, 2018. For NBFCs, asset quality in the real estate financing book started displaying signs of stress starting fiscal 2019.

Overall, the sharp reduction in Non-Performing Assets (NPAs) indicates that the opportunity for ARCs – especially in corporate loans – is perhaps at a cyclical low. That said, retail assets, which have garnered more interest from ARCs in the past couple of years, continue to offer a meaningful opportunity, as do loans to micro, small and medium enterprises (MSMEs), according to the CRISIL report.

ARCs were facing headwinds since 2020, with growth in AUM, as measured by Securities Receipts (SRs) outstanding, dropping to low single digits till 2022.

CEIB Develops a Portal for Antecedent Verification of Borrowers, NPAs

The Central Economic Intelligence Bureau (CEIB) and State Bank of India have jointly developed a digital platform to help public sector banks to promptly obtain mandatory intelligence clearance from the bureau to facilitate timely disbursement of funds. The “Automated Search Portal” for Antecedent Verification of Prospective Borrowers and Non-Performing Assets (NPAs) aims to streamline the intelligence clearance process for banks.