Retail loan stress is the new growth driver for ARCs

MUMBAI: Retail stress is emerging as a key growth driver for asset reconstruction companies (ARCs), with security receipt (SR) issuances linked to retail assets increasing 21% year-on-year to Rs 58,826 crore in 2025-26, according to industry data.

The growth is being driven by an expanding stock of delinquent unsecured loans being offloaded by banks and non-banking finance companies, even as the banking system's overall bad loan ratio continues to decline.

The increase far outpaced the ARC industry's overall growth of 9%, with total SR issuances increasing Rs 29,202 crore to Rs 3.51 lakh crore during the year. In comparison, SR issuances backed by corporate assets grew a relatively modest 7% to Rs 2.92 lakh crore.


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Industry executives expect retail-led growth to continue as lenders increasingly sell portfolios of unsecured loans, including personal loans, microfinance exposures and credit card receivables, to clean up their balance sheets.

"ARCs have been enhancing their retail set-up, including strengthening analytics and compliance teams, to handle increased volumes in the coming years," said Hari Hara Mishra, chief executive of the Association of ARCs in India.

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During 2025-26, ARCs acquired stressed debt worth more than Rs 2 lakh crore, comprising Rs 1.5 lakh crore of corporate loans and Rs 50,000 crore of retail assets. Retail acquisitions increased Rs 54,727 crore year-on-year, while corporate acquisitions expanded Rs 1.5 lakh crore.

The decline in headline NPA (non-performing asset) ratios does not necessarily translate into lower opportunities for ARCs, as a large stock of written-off retail accounts continues to be available for sale by lenders, said Prakash Agarwal, partner at Gefion Capital. "As retail credit portfolios expand, even a small percentage of stress creates substantial volumes for resolution. We expect retail acquisitions to remain robust over the next few years, particularly in unsecured segments such as personal loans, credit cards and microfinance."

The ARC sector's growth comes at a time when the banking system's asset quality metrics are at their strongest levels in more than a decade. Gross NPAs have fallen steadily from 11.2% in 2018-19 to an estimated 2% in 2025-26.

However, industry executives argue that headline NPA ratios do not fully capture the volume of stressed assets available for resolution.

"Behind the balance-sheet numbers, there is a large pool of written-off accounts that ensures a steady pipeline of NPA sales to ARCs. The migration to the expected credit loss regime from 2027 is likely to accelerate resolutions by banks, including sales to ARCs," Mishra said.