By Kshipra Petkar
Assets under management (AUMs) of private ARCs (asset reconstruction companies), as measured by security receipts (SR) outstanding, are expected to decline 4-6% to around Rs 1.05 lakh crore this fiscal, after sliding 15% in FY25, according to CRISIL Ratings.
The deceleration in AUM, CRISIL says, is because the acquisition of stressed assets will continue to trend lower even as redemptions, which improved in recent years, are likely to remain healthy.
Experts believe that ARCs may need to revisit their business models to adapt to the changing regulatory landscape. With the securitisation of non-performing assets potentially disrupting the industry’s status quo, ARCs may have to seek alternative opportunities to drive growth and profitability.
Aesha Maru, associate director, CRISIL, feels that Reserve Bank of India’s proposed new route for securitisation for stressed assets could increase competition for ARCs when it comes to acquisitions.
The suggested norms require selling entities — banks and others — to sell bad loans to special purpose entities (SPEs) that, in turn, will create securities and sell to investors. Such SPEs may appoint resolution managers (ReMs), who will be responsible for the administrative process and recovery of underlying stressed exposures. Only the RBI-regulated entities can be appointed as ReMs.
These entities can look to build asset-light, fee-based business models by leveraging the existing resolution infrastructure and expertise in stressed assets resolution and become ReMs (resolution managers) under the new framework,” Maru said.
However, some industry players believe that the new rules, if implemented, would benefit ARCs with a strong track record as they would stand a better chance of becoming ReMs.
Meanwhile, acquisitions by private ARCs will remain subdued this fiscal. SRs issued in FY25 fell 29% to around Rs 22,000 crore, from about Rs 31,000 crore in FY24. However, Subha Sri Narayanan, director, CRISIL Ratings, believes that retail acquisitions could see some pick-up this fiscal as there is an uptick in delinquencies in certain segments, such as microfinance and unsecured loans. Also, ARCs can now settle retail loans under Rs 1 crore via a simpler process.