Private lender IndusInd Bank NSE -2.27 % sold more than Rs 4,050 Crore of distressed loans to asset reconstruction companies (ARC) in the last three quarters to clean its books, said two people aware of the matter. The bank sold Rs 2,552 Crore loans to Edelweiss ARC and Rs 1,500 Crore to Omkara ARC in separate pools comprising retail and corporate loans, people said. IndusInd Bank's aim to maintain its net non-performing assets below 1% could have prompted the lender to sell the distressed loans, a third person said. IndusInd Bank, Omkara ARC and Edelweiss Arc declined to comment. In the December quarter, the bank sold a retail portfolio of Rs 1,800 Crore for a consideration of Rs 750 Crore under the 15:85 structure to Edelweiss ARC. The recovery is linked to the resolutions done by acquiring ARC.

Nirmala Sitharaman who is the Union Finance Minister in her Budget 2021 speech on 1st February declared an entity in the form of an asset reconstruction company/asset management company or more merely known as a ‘Bad Bank’ to assist the banking system in getting rid of the existing stock of problematic loans. The bad bank will absorb the existing stock of non-performing assets (NPAs) of the banks and shall try for resolution through a professional approach. Among the several other entities operating in India in the asset reconstruction space, the oldest is Asset Reconstruction Company India (Arcil). In fact, Arcil is even owned by a clutch of financial institutions which includes State Bank of India (SBI), IDBI Bank, ICICI Bank (ICICI), Punjab National Bank (PNB), and Avenue India Resurgence Pte.

“In the large corporate sector, things have almost stabilized. Fresh NPAs will be few and far between in the coming years. But covid stress has built up in MSME and retail sectors," said Pallav Mohapatra, managing director and CEO, Asset Reconstruction Co. (India) Ltd at the Mint Annual Banking Conclave. Even as corporate bad loans were brought under control, non-performing assets (NPAs) in small-ticket loans to retail and small businesses are likely to rise in the coming quarters, said experts. “In the case of retail, repayments are dependent on salaries and during covid and lockdowns there were layoffs, salary cuts and at times people were not paid on time. In the case of MSMEs (micro, small and medium enterprises), their manufacturing activity had stopped and they were not getting workers.

Even as corporate bad loans were brought under control, non-performing assets (NPAs) in small-ticket loans to retail and small businesses are likely to rise in the coming quarters, said experts at the Mint Annual Banking Conclave held on 15 December. “In the large corporate sector, things have almost stabilized. Fresh NPAs will be few and far between in the coming years. But covid stress has built up in MSME and retail sectors," said Pallav Mohapatra, managing director and CEO, Asset Reconstruction Co. (India) Ltd. “In the case of retail, repayments are dependent on salaries and during covid and lockdowns there were layoffs, salary cuts and at times people were not paid on time. In case of MSMEs (micro, small and medium enterprises), their manufacturing activity had stopped and they were not getting workers. If their activity is affected even for 3-4 months, it really impacts cash flows as they do not have other sources to raise money than debt.       

The Reserve Bank of India rejected Religare Finvest Ltd's proposal to rename itself Care Financial Services and declined to new management status to the existing management - a move that would derail debt restructuring of the finance company, said people aware of the matter. As per the RBI's regulations, lenders cannot restructure loans of borrowers tagged as fraud, unless there is a change in management. Lenders have tagged its parent company Religare Enterprises Ltd (REL) as fraud. Religare Finvest itself filed a case of financial irregularities against REL and have also proposed a debt recast plan with REL as its promoter company. "There is a dichotomy here and this may be a reason for the banking regulator to reject the change in management status," one of the persons quoted above said.