As stress in the wholesale segment has decreased in recent years, asset reconstruction companies (ARCs) have shifted their focus to acquiring distressed retail assets. With rising stress in unsecured retail loans and microfinance, PALLAV MOHAPATRA, MD & CEO of Asset Reconstruction Company (India) (Arcil), spoke with Subrata Panda about how the ARC sector is preparing for the upcoming retail NPA cycle. The acquisition numbers are much better than last year. And the recovery numbers are on the lines of last year. Last year was not in sync with the normal years because the acquisition was a bit lower. But normally, the gap between our acquisition and recovery numbers for the year is less than 30 per cent. Our recoveries in April- December period will be close to Rs 2,600 crore and acquisition will be around Rs 3,500 crore.

The article discusses the Reserve Bank of India's (RBI) recent guidelines allowing banks to engage in compromise settlements with borrowers classified as fraud or willful defaulters. This policy shift is expected to expedite the resolution of non-performing assets (NPAs) and attract asset reconstruction companies (ARCs) to acquire distressed assets more aggressively. By enabling settlements with previously restricted borrower categories, the RBI aims to enhance the efficiency of bad loan recoveries and improve the overall health of the banking sector.

Another illustration of the State Bank of India's (SBI) vast and seasoned talent pool managing delicate or problematic lenders across the nation is the appointment of Amitava Chatterjee as CEO of Jammu & Kashmir Bank (J&K Bank) late last month. After the regulator accepted their appointments to help stabilize operations at Tamilnad Mercantile Bank (TMB), Bandhan Bank, Karur Vysya Bank, Yes Bank, and IDBI Bank, Chatterjee now joins a roster of SBI veterans who are in charge of these banks. In recent years, SBI has strengthened its position as the go-to source for seasoned bankers, with up to six CEOs working for other lenders. That speaks volumes about the quality of the banking giant and the Reserve Bank of India's (RBI) confidence in SBI's managerial abilities. 

Asset Reconstruction Company (Arcil) aims to increase its assets under management (AUM) to Rs. 20,000-22,000 crore in the next two to three years, up from Rs. 16,800 crore at present, chief executive officer and managing director Pallav Mohapatra told. The country’s oldest asset reconstruction company plans to raise the share of retail assets to 40%, up from the current 30%.

Asset reconstruction companies (ARCs) could post a de-growth in their assets under management (AUM) in FY25 due to a drop in the availability of large-ticket stressed or non-performing assets (NPAs). According to Crisil Ratings, the AUM of private ARCs, as measured by outstanding security receipts (SRs), could de-grow by 7-10 per cent this fiscal. It estimates private ARC's AUM at ₹1.2-1.25 lakh crore by FY25 end, lower than the ₹1.35 lakh crore as at FY24 end.

Pallav Mohapatra, MD and CEO of Asset Reconstruction Company (ARCIL), said the stress in banks’ corporate loan books has reduced considerably since the regulator tightened underwriting standards after the asset quality review conducted in 2015. Corporates also started deleveraging and did not opt for significant capacity expansion. If they did intend to raise capital for expansion, they chose the capital market route rather than bank loans, further lowering the share of corporate loans in banks’ overall advances. This led to lower availability of higher-quantum corporate bad loans for ARCs. ARCIL’s AUM rose to ₹16,800 crore in Q2FY25 from ₹16,400 crore in Q2FY24.