By Piyush Shukla

Copyright thehindubusinessline

How did ARCs fare in FY25?

The overall dues acquired by ARCs rose 17 per cent year-on-year (y-o-y) to ₹1.71 lakh crore in FY25, excluding one-time SASF dues acquisition of ₹4.22 lakh crore. SASF was a SPV trust acquiring IDBI bad loans in 2004, and its residual assets were transferred to another ARC in FY25. ARCs issued SRs amounting to ₹37,511 crore in FY25, 13 per cent higher than FY24. SR redemptions rose by 30 per cent to ₹43,256 crore in FY25, while net SR outstanding fell 4 per cent on-year to ₹5,745 crore in FY25. As per the trend up to Q1FY26, while there is a decline in SRs of corporate assets acquired, retail SRs’ growth has more than doubled. However, this is also because of low base last year. Within retail, we have seen growth in unsecured loans, commercial vehicles and mortgage NPA acquisitions.

Redemptions were higher than issuances. How are ARCs planning to tackle the trend?

Whenever an investment is made, there is an investment horizon, and the investor has to be paid in certain time frame. Earlier, due to various reasons, redemptions were getting delayed, but now things are in better position due to broader economic growth. Certain sectors where ARCs had exposure, including infrastructure, power and real estate, are picking up. So, there is substantial pick-up in overall recovery, which is a good sign as investors are getting returns faster and are ready to commit more capital in ARCs. ARCs’ business model is now moving away from management fees to resolution success fee more, which is a healthy sign of maturity. Earlier, book building was in focus, recovery was low, and now the trend has reversed. Profitability-wise, all ARCs are doing much better than earlier.

How did ARCs improve the recovery rate?

ARCs have already developed robust resolution platform. They have hired the best of talent in restructuring, and are trying to take decisions at a faster pace. An industry analysis shows that asset sale and settlement contributed towards only one-thirds of overall recovered amount, while the remaining came through IBC, in-house restructuring and other measures, marking another healthy trend.

What is the estimate of industry AUM growth in FY26?

The trend of slightly declining asset under management (AUM) driven by better recovery trends will continue due to robust economic growth. The one shift, if we see from Q1FY26 trends, is that more retails assets are coming to the ARC market. In Q1FY25, ₹3,182 crore of corporate SRs were issued, which has come down to ₹2,675 crore in Q1FY26, a decline of 16 per cent. Whereas retail assets SRs grew from less than ₹500 crore in Q1FY25 to ₹1,700 crore in Q1FY26, which is more than two-times growth. This story will likely play in out in current fiscal.

Overall, we must note that there is an incremental flow of ₹1 lakh crore of NPAs each year. Gross NPA in itself is post write offs, a part of which is only for accounting purpose, according to IRAC norms. These written off accounts — not part of GNPA — are still available for legal action and sale to ARC. NPA moves in waves. When it looks bottoming out, another rise is on the way.