Arcil buys Ujjivan Small Finance Bank's stressed loan folio for Rs 34 cr

ARCIL's bid translates into a recovery of 9% for the lender

Avenue Capital and State Bank of India (SBI)-backed Asset Reconstruction Company (India) Ltd (ARCIL) has acquired Ujjivan Small Finance Bank's (SFB’s) non-performing microfinance portfolio of ₹365.5 crore for ₹34.26 crore, translating into a recovery of just 9.39 per cent, or over 90 per cent haircut, for the lender, said sources aware of the development.

 

ARCIL had given the anchor bid, which triggered the Swiss Challenge auction for the portfolio put up for sale by the lender. Ujjivan SFB had called for counterbids, on a cash plus security receipts basis, with a markup of 5 per cent over the anchor bid, from entities interested in acquiring the asset. Since there were no counterbids, ARCIL’s anchor bid became the successful bid.

 

In an exchange filing, the bank has stated: “…we hereby inform that the bank has completed the sale of stressed loan portfolio, including written off loans pool, with outstanding value of ₹364.51 crore as on January 31, 2025 to ARC for a consideration amounting to ₹34.26 crore.”

 

“We acquired the portfolio for less than 10 per cent of the outstanding loan value and expect strong recoveries due to the competitive acquisition price,” Pallav Mohapatra, MD & CEO of ARCIL, told Business Standard.

 

The portfolio comprises 119,478 accounts. The stressed micro-banking asset put up for sale by the bank involves ₹294.5 crore loan pool, which were 150 days past due (DPD), and ₹70 crore of loans that have been written off by the bank.

 

In the past few quarters, stress in the microfinance sector has built up because of unchecked credit growth, which has resulted in significant overleveraging among borrowers. Major banks and microfinance-focused non-banking financial companies (NBFCs) are witnessing a significant rise in delinquencies within this segment.

 

For the asset reconstruction companies (ARCs), microfinance assets do not hold much value, given they are unsecured in nature. Having said that, there will likely be demand for these portfolios, provided the price is right. They believe there could be interest from potential buyers if banks sell the loan pool at 10 per cent of the outstanding book value.