Bandhan Bank to sell unsecured NPAs worth nearly ₹7,000 crore to ARCs

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 Rs 6,931.31 crore to asset reconstruction companies (ARCs) and other permitted entities, marking one of the largest retail loan sale exercises by a private sector bank. Most of these bad assets are from the bank's micro loan portfolio.

 

“The bank will go for bidding as per the Swiss Challenge method for the sale of its non-performing assets (NPA) portfolio, with more than 180 days past due, having a principal outstanding of Rs 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 Rs 3,719.14 crore as on September 30, 2025,” the lender said in its exchange filing.

 

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.

 

According to sources, the bank may consider selling more such loan pools if the current portfolios receive strong interest from ARCs.

 

Bandhan Bank’s net profit was down 88 per cent year-on-year (Y-o-Y) to Rs 112 crore in the second quarter of 2025-26 (Q2FY26). Its gross non-performing assets (NPA) stood at 5.02 per cent during the quarter.

 

In 2023, Bandhan Bank had sold its Rs 775 crore affordable home loan portfolio to Avenue Capital-backed Asset Reconstruction Company of India (Arcil) for Rs 280 crore in an all-cash transaction.

 

The microfinance segment across banks and microfinance institutions (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 Rs 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 while several other small finance banks have undertaken similar transactions amid rising stress in the sector.

 

With stress intensifying in microfinance, ARCs are open to acquiring such portfolios, provided valuations are attractive and transactions are structured on a cash-plus-security receipts (SRs) basis rather than on a full-cash basis.

 

Earlier this year, Arcil acquired Ujjivan SFB’s non-performing microfinance portfolio of Rs 365.5 crore for Rs 34.26 crore, implying a recovery rate of just 9.39 per cent — a haircut of over 90 per cent for the lender.