Private sector debt recast firms' AUM may further shrink, says CRISIL

CRISIL forecasts a 4-6% drop in AUM for private asset reconstruction companies (ARCs) in FY26 due to subdued acquisitions of stressed loans and potential disruptions from loan securitisation

The Assets under management (AUM) of private asset reconstruction companies (ARCs) is expected to shrink by 4-6 per cent to ₹1.05 trillion in the current financial year (FY26). The acquisition of stressed loans may remain subdued amid the healthy asset quality profile of lenders, according to Crisil.  

 

The securitisation of non-performing loans may also potentially disrupt the industry's business dynamics.

 

The AUM, as measured by security receipts (SRs) outstanding of ARCs, had shrunk to ₹1.10 trillion at the end of FY25 from ₹1.30 trillion a year ago.

 

In a statement, Crisil said acquisitions by private ARCs will remain subdued in FY26. SRs issued in FY25 had already reduced by 29 per cent to ₹22,000 crore from about ₹31,000 crore in FY24. In the corporate segment, this was largely owing to limited opportunities as gross non-performing assets (NPAs) for banks in the segment were at a multi-year low of less than two per cent as on March 31, 2025. It is expected to remain subdued over the medium term. 

 

Clearly, despite the existence of a large stock of written-off corporate loan assets, private ARCs may not be very competitive, especially for large accounts, because of competition from the only government-supported ARC with its unique guarantee-backed SRs model.

 

As for retail assets, higher operational intensity due to stringent regulatory needs had reduced the interest among ARCs.

 

Referring to the securitisation of bad loans, Crisil said that ARCs may have to seek alternative opportunities to drive growth and profitability. ARCs must prepare to pivot and adapt to a rapidly changing landscape with the Reserve Bank of India’s (RBI’s) draft guidelines of April 2025 providing a framework for this new product.

 

Apart from the quantum of acquisitions, the healthy trajectory of SR redemptions also had a bearing on AUM growth for ARCs. Lower vintage of assets in recent acquisitions, higher share of retail assets that typically churn faster, and more optimally priced cash transactions were some of the factors driving this trend. 

 

In this milieu, private ARCs continued to see high SR redemptions at over ₹28,600 crore in FY25, outpacing acquisitions for the second consecutive year, it added.