Asset reconstruction companies (ARCs) are entering a critical transition phase as the supply of large corporate bad loans dwindles and retail stress becomes the dominant driver of the distressed-assets pipeline, according to Crisil Ratings. Analysts stated that the assets under management of private ARCs are likely to decline by 4–6% in FY26 and FY27 due to strong redemptions and fewer fresh acquisitions.
Overall cumulative recoveries are projected to improve significantly—to 80–85% this financial year and 85–90% in FY27—compared with around 65% in FY25. Analysts attributed the momentum to stable demand across infrastructure sectors such as power, real estate and roads, which are expected to support higher recoveries through the current fiscal.
Deadline in March
The March 31 deadline for ARCs to comply with the higher net owned funds requirement of ₹300 crore strengthened the sector by expanding the capital base. “The Insolvency and Bankruptcy Code has resolved over Rs 26 lakh crore of debt directly and indirectly. However, stretched resolution timelines and range-bound recovery rates necessitate revisions,” analysts added.
With loan books shifting towards MSMEs and retail borrowers over the past five years, lenders are now witnessing rising delinquencies in segments such as personal loans, microfinance, fintech-originated credit and small-business loans. According to Crisil, this will form the bulk of new NPA inflows to ARCs in FY26 and FY27, though ongoing IBC resolutions of older corporate accounts will continue to support overall recoveries.
Avinash Kulkarni on retail portfolios
Retail portfolios, unlike corporate exposures, require high-volume, technology-led recovery capabilities, advanced data analytics and extensive field reach. “Retail resolutions need very different skill sets,” said Avinash Kulkarni, managing director and CEO of India Debt Resolution, during a panel discussion. Sandeep Gupta, MD and CEO at Encore Asset Reconstruction, added, “You may be dealing with lakhs of accounts rather than a handful, so ARCs have to invest heavily in analytics, automation, call-centre infrastructure and field collections.”
The rise in unsecured retail NPAs is also playing out against a real-estate market that has strengthened considerably across most urban centres. This is improving the resolution potential of several stalled or distressed real-estate projects inherited from previous NPA cycles.
Another trend highlighted at the webinar was the diversification of sellers. With banks carrying lower NPAs, NBFCs and fintech lenders have emerged as larger sources of stressed retail assets. ARC-to-ARC transactions have also increased, deepening the market for security receipts (SRs) and improving liquidity, panellists said.
Crisil noted that the ARC business model is evolving as cash deals rise and skin-in-the-game requirements increase. This has reduced reliance on management fees and made upside-linked recovery income a more important driver of profitability. Operating costs, however, are expected to rise as ARCs scale up technology and retail-focused recovery infrastructure
