Asset reconstruction companies (ARCs) are increasingly focusing on recovering retail loans as lenders have largely cleaned up their corporate book in recent years.
“With lenders increasingly focusing on retail loans, this portfolio has been growing faster than the corporate book. As such, there is likely to be a sizeable supply of retail non-performing loans,” Neeta Mukerji, CEO, Asset Care and Reconstruction Company (ACRE), said.
Hari Hara Mishra, CEO, Association of Asset Reconstruction Companies, estimates the share of retail assets in the overall portfolio of ARCs to rise to over 20% in the next two years, from around 13% currently.
Rishabh Goel, co-founder and CEO, Credgenics, said ARCs recognise the huge untapped opportunity in small-ticket loans like personal, education and MSME.
More ARCs are stepping up the retail asset business. In November, the Shriram Group announced its entry into the retail asset reconstruction segment saying it would target a ticket size of less than Rs 20 lakh. Recently, JM Financial Asset Reconstruction Company acquired a substantial proportion of retail assets with an internal rate of return of 16-18%.
Retail NPLs account for 10% of ACRE’s assets under management but it is looking to substantially increase the share of retail.
RK Bansal, MD and CEO, Edelweiss Asset Reconstruction, pointed out that the advantage in retail is that unlike in wholesale where the recovery may happen in three or four years, the money comes really fast.” If we buy a home loan pool, recovery starts within three months. Our cash flow management is far better,” he said.
The market for retail stressed assets has become more diversified. Earlier it was more concentrated on secured assets classes like home loans and loans against property. In recent times, the proportion of unsecured personal loans and microfinance loans has been on the uptrend, say experts.
Experts believe some ARCs could switch completely to retail loans. Typically, the size of the principal amount for a retail loan varies from `5,000 to `5 crore. Retail loans are more granular and require processes and infrastructure to recover ompared to corporate loans which require a case-specific approach. Given the smaller ticket size, retail requires increased use of technology and call centre infrastructure compared to corporate loans, say experts.