Asset Reconstruction Co.(India)

Retail credit has expanded rapidly across banks and NBFCs, increasing the absolute pool from which future delinquencies, write-offs and stressed-asset sales can emerge. Unlike traditional large corporate NPA resolutions, Retail portfolios involve high volumes of small-ticket secured and unsecured accounts, making data-led pricing, borrower segmentation, digital collections and broad recovery infrastructure increasingly important for ARCs

• Retail credit in India reached approximately INR 76.0 trillion as of March 31, 2025 after growing at about 18.0% CAGR between FY19 and FY25; CRISIL expects roughly 14.0%-15.0% growth through FY28

• Overall Retail stressed assets at banks and NBFCs increased from approximately INR 3.47 trillion in FY20 to about INR 6.96 trillion in FY26, indicating that a larger credit base is translating into a larger absolute stressed pool

• The stressed-asset mix is already shifting away from corporates: the corporate share of security receipts issued by ARCs declined from about 64.0% in FY21 to 40.0% in FY23

• Unsecured categories such as personal loans and credit cards have shown higher stress than several secured Retail categories, increasing the need for specialised high-volume recovery capabilities

MSME and microfinance credit add a second granular opportunity outside Retail. These portfolios are fragmented across borrowers and geographies and can include weaker collateral or fully unsecured exposures, so acquisition economics depend on disciplined portfolio-level underwriting and scalable field collections. As formal credit penetration rises, even moderate delinquency rates can create a substantial stressed-asset pool for specialised resolution platforms

• Estimated MSME credit increased from approximately INR 41.2 trillion as of March 31, 2022 to INR 82.2 trillion as of March 31, 2024, implying about 18.8% CAGR

• MSME NPAs were approximately INR 1.90 trillion as of March 31, 2026, while total MSME stress was estimated at approximately INR 9.2 trillion

• Total MSME stress increased from approximately INR 6.8 trillion in FY22 to INR 9.2 trillion in FY26, a CAGR of about 7.6%

• Microfinance and unsecured pools create additional acquisition opportunities because portfolios can be purchased at discounts, but successful economics require borrower-level analytics, field presence and collection discipline

The industry is gradually moving from late-stage NPA resolution toward earlier intervention. RBI permission to acquire SMA accounts allows ARCs to enter before value erosion becomes severe, while IBC, SARFAESI, DRT and negotiated settlement routes provide multiple recovery pathways after acquisition. Lower-vintage portfolios can shorten resolution timelines and improve the probability of recovering value before collateral or borrower economics deteriorate further

• SMA accounts represented approximately 30.0% of new ARC acquisitions in FY25, up from about 14.0% in FY24 following RBI's October 2022 permission for ARCs to acquire SMA assets

• CRISIL estimates cumulative ARC recovery rates at approximately 83.0%-85.0% in FY26 and 90.0%-92.0% in FY27, materially above earlier years

• Of the approximately INR 11,000.0 Cr recovery pool expected in FY27, corporate assets are expected to contribute about 92.0%, with real estate, roads and diversified sectors remaining important recovery sources

• Retail cumulative recovery rates are expected to remain high, supported by lower-vintage secured pools and improving collection infrastructure, although realised outcomes remain portfolio-specific

Policy support for ARCs is regulatory rather than subsidy-led. RBI and SEBI reforms have widened the types of stressed assets ARCs can acquire, strengthened minimum capital and governance standards and broadened participation in security receipts. In parallel, IBC, SARFAESI and DRT provide formal legal resolution routes, while the new ECL framework can encourage lenders to recognise and transfer emerging stress earlier

• Earlier acquisition: RBI permits ARCs to acquire SMA-0, SMA-1 and SMA-2 accounts in addition to NPAs, enabling intervention before accounts reach deeper stages of stress

• Capital / governance: RBI raised minimum Net Owned Fund to INR 300.0 Cr and the RBI (Asset Reconstruction Companies) Directions, 2025 consolidated governance, sponsor, fair-practice and operating requirements

• Resolution role: ARCs with NOF above INR 1,000.0 Cr can act as resolution applicants under IBC, while SARFAESI and DRT remain established enforcement and recovery mechanisms

• Funding and ECL: SEBI's 2025 framework allows NBFCs / HFCs to invest in ARC security receipts, while RBI's ECL framework raises Stage 2 provisioning floors to about 5.0% versus roughly 0.4% earlier, potentially encouraging earlier stressed-asset sales