Bandhan Bank's ₹7,000 crore MFI portfolio sale evokes interest from ARCs

At right price, ARCs are eager to acquire the portfolio

Bandhan Bank’s nearly ₹7,000-crore microfinance bad loan portfolio sale — one of the largest such sales by a private sector bank — has attracted significant interest from asset reconstruction companies (ARCs).

 

Industry insiders say that given the large number of accounts in the microfinance portfolio and the current stress in the sector, it could be a good buy for ARCs at the right price. 

Typically, large microfinance portfolios are sold for less than 10 cents on the dollar, industry insiders said. 

“There is some interest from the industry,” said the chief of a large ARC, adding that while it has evinced interest, it will all depend on the pricing. 

Given that its mostly microfinance portfolios involve millions of accounts, the due diligence is difficult, and so is recovery, he added.

 

“While ARCs would be doing their due diligence on the portfolios, the pricing will be the key, given the low recoveries on such portfolios,” said the chief of another ARC, which has acquired a few microfinance institution (MFI) portfolios in the past.

 

Kolkata-headquartered private sector lender Bandhan Bank on Thursday informed the exchanges that it will sell unsecured retail bad loans, including written-off accounts, worth ₹6,931.31 crore to ARCs and other permitted entities. Most of these bad assets are from the bank's micro loan portfolio.

 

The bank will go for bidding in accordance with the Swiss Challenge method for the sale of its non-performing asset (NPA) portfolio, with more than 180 days past due, having a principal outstanding of ₹3,212.17 crore as on September 30, 2025.

 

Further, the bank will opt for an auction route for the sale of its written-off loan portfolio, with a principal outstanding of ₹3,719.14 crore as on September 30, 2025.

 

These loans belong to the emerging entrepreneurs’ business (EEB) segment — which largely comprises microfinance loans, including group loans, small business loans, and agri loans — and the aspiring business group (ABG) portfolio.

 

The microfinance segment across banks and MFIs has been dealing with elevated stress for several quarters now, leading to a sharp deterioration in asset quality. This stress stemmed from unchecked credit expansion and multiple lending to the same borrower, resulting in significant overleveraging.

 

However, early signs of normalisation are now visible as lenders recalibrate growth and self-regulatory bodies enforce tighter guardrails.

 

Other lenders, too, have been offloading stressed microfinance assets.

 

IndusInd Bank, in December last year, put up ₹1,573 crore of non-performing microfinance loans from over a million accounts for sale.

 

Ujjivan Small Finance Bank (SFB) has also sold portions of its stressed microfinance portfolio in multiple tranches. Several other SFBs have undertaken similar transactions amid rising stress in the sector.

 

“At the right price, the portfolio should be absorbed — ultimately, everything depends on pricing. In terms of capacity, a ₹7,000-crore pool can be taken on, subject to proper due diligence. The only challenge is that there may not be adequate infrastructure to manage such a large volume of microfinance accounts,” said an industry insider.

 

“ARCs are gearing up for being holistic single point service providers for handling all categories of stress in the financial system. In relatively new areas of stress like microfinance, ARCs are scaling up capabilities in areas of due diligence, valuation, monitoring, use of technology for optimal resolution and meeting compliance requirements,” said Hari Hara Mishra, chief executive officer (CEO), Association of ARCs in India. 

Offloading stress

• Bank is selling nearly ₹7,000 crore of bad microfinance loans
• There is interest from ARCs, but actual acquisition depends on pricing
• Pricing will be crucial given low recoveries on MFI portfolios
• ARCs have the capacity to buy it, but lack of infrastructure to manage so many accounts is a challenge
• Bandhan may need to continue as the servicer after selling it