By Kshipra Petkar
The unsecured retail book of asset reconstruction companies (ARCs)—the dues acquired by them in unsecured and micro-finance loans—has risen by over 50% from Rs 50,634 crore to Rs 76,029 crore in FY25. It now forms almost 24% of the growth in Rs 1.07 lakh crore acquired dues in the full year, data from the Association of ARCs in India show.
Overall, the share of the unsecured retail increased to 7.3% from 5.5% a year ago, while the share of retail secured book increased marginally to 9.9% from 9.5% a year ago.
Hari Hara Misra, chief executive officer, Association of ARCs in India, said that the recovery of loans generated by financial technology companies (fintech) has been challenging due to weak underwriting standards. “The underwriting is very weak, so whatever you do the recovery is a problem,” he said.
According to Misra, these loans form “quite a bit” of the total ARC book. He added that since these loans are given to people who have no formal income and the CIBIL score is not important, the risk is very high.
As per the data, asset reconstruction companies acquired dues worth Rs 25,395 crore of retail unsecured and microfinance book totalling to Rs 76,029 crore as on March 31, while they acquired Rs 14,599 crore of the retail secured book. ARCs acquired dues worth Rs 67,252 crore from the corporates in the year ended March.
This comes at a time when banks reduced their exposure to the unsecured book in order to avoid concerns over asset quality in the previous fiscal. The recent sectoral deployment of credit data by the Reserve Bank of India (RBI) showed that the growth in credit to personal loans fell to 14.5% year-on-year from 17.0%. This was mainly due to a decline in growth of other personal loans, vehicle loans and credit card outstanding, the apex bank said.
In FY25, recovery from asset reconstruction companies increased by 27% on year to Rs 2.20 lakh crore as on March 31. Recovery was mostly through the Insolvency and Bankruptcy (IBC) route which stood at Rs 39,430 crore as on March 31 compared to Rs 23,192 crore reported a year ago. This was followed by recoveries through in-house restructuring and asset sales. The lowest recoveries were through the settlement route, which once used to be the dominant resolution strategy, Hara said.
The total issuances of security receipts in the year ended March stood at Rs 3.21 lakh crore from Rs 2.84 lakh crore, representing a growth of 13%. Security receipts are instruments like pass-through certificates which are issued by ARCs to investors, representing their rights over realisations from underlying assets.