Growing stress in the mid-sized corporate segment is driving a fresh wave of non-performing asset (NPA) sales to asset reconstruction companies (ARCs), marking a shift from lumpy, large-ticket resolutions that dominated last year.
Industry data show a steady acceleration in dues being acquired by ARCs this fiscal – from Rs 16,876 crore in Q1 to Rs 37,382 crore in Q2, and to Rs 69,331 crore by Q3, over four times the first-quarter level.
Cumulatively, dues acquired by ARCs up to the third quarter rose to Rs 1.24 lakh crore in FY26 from Rs 1.14 lakh crore in the year-ago period, reflecting a steady year-on-year growth along with the sequential acceleration.
From Lumpy to Granular
Corporate loans accounted for bulk of these transfers. Corporate NPAs sold to ARCs increased from Rs 10,250 crore in Q1 to Rs 44,517 crore in Q3. Retail dues, too, recorded a sharp uptick — from Rs 6,626 crore in Q1 to Rs 24,814 crore in Q3.
“We see a gradual acceleration in NPAs sold to ARCs quarter on quarter this financial year. Unlike last year, it is not concentrated in large-ticket ones, but dispersed across mid-corporate and a pool of various segmental loans,” said Hari Hara Mishra, CEO of the Association of ARCs in India.
Recent transaction notices reflect this diversification. A consortium of Indian Bank, Punjab National Bank, Bank of India and Union Bank of India invited bids to sell Rs 738 crore of loans to BLA Power under the RBI’s stressed asset transfer framework through a competitive bidding process. Separately, IDBI Bank has initiated a Swiss challenge process to transfer its Rs 56.25-crore exposure to Heavy Metal & Tubes.
Quarterly disclosures from major lenders show that such sales are becoming more routine. State Bank of India reported that during the nine months ended December 2025, it transferred 64 NPA accounts with an aggregate principal outstanding of Rs 3,776 crore to ARCs for Rs 1,250 crore. Bank of Baroda, Punjab National Bank and Union Bank of India also reported NPA transfers during the period.
Together, these four banks sold loans with principal outstanding of about Rs 5,594 crore, realising Rs 2,377 crore in consideration. The pricing indicates that the asset quality has improved across the system and banks are willing to take meaningful haircuts to accelerate clean-up and recycle capital.
Accelerated Recycling
“The increased sale of NPAs by banks to ARCs is largely driven by efforts of certain banks to clean up stressed asset books, including exposures in the retail unsecured segment. Additionally, the expectation of higher and faster recoveries through ARCs, compared with alternative resolution routes, is incentivising such transactions,” Sachin Sachdeva, vice president – financial sector ratings at ICRA, said.
Analysts said the current round of sales does not point to a systemic deterioration in the asset quality, with gross NPAs across public sector banks being largely under control. Instead, the activity appears concentrated in legacy mid-sized and SME exposures, particularly in export-linked pockets that have faced pressure from global demand and tariff uncertainties. Retail loan transfers remain limited, given operational challenges for ARCs in recovering small unsecured accounts.