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Time of India
2 days ago
- Business
- Time of India
Bad Loans Shrinking, ARCs Need New Business Model: Crisil
Mumbai: Crisil has called for a shift in the business model of private asset reconstruction companies (ARCs), warning that their assets under management (AUM) are likely to shrink further as the stock of bad loans dwindles. Tired of too many ads? go ad free now AUM, measured through outstanding security receipts (SRs), is expected to fall 4–6% to around Rs 1.05 lakh crore in FY26, following a 15% drop last year, which included a one-time Rs 13,000 crore write-off by a large ARC. Even without this, SR issuances dropped 29% to Rs 22,000 crore in FY25 from Rs 31,000 crore in FY24. Redemptions have outpaced acquisitions for two consecutive years, aided by younger asset vintages, faster churn in retail pools, and more cash deals. With gross NPAs in the corporate segment falling below 2%, fresh acquisition opportunities are scarce. Additionally, the govt-backed NARCL has gained a competitive edge in acquiring large corporate loans due to its guarantee-backed SR model. Retail acquisitions, which had slowed due to operational complexity, may see a partial revival. 'Retail acquisitions could see some pick-up this fiscal for two reasons,' said Subha Sri Narayanan, director at Crisil Ratings. 'One, there is an uptick in delinquencies in certain segments, such as microfinance and unsecured loans. Two, the regulations have become more conducive.' She pointed to recent rules that allow ARCs to settle loans under Rs 1 crore without committee approval and formally permit the selling lender to act as servicer. However, she added, 'Such acquisitions may not necessarily be AUM-accretive given the relatively higher discount rates in retail pools.' Tired of too many ads? go ad free now "The short term outlook of ARC industry is linked to issuance of final guidelines on Securitization of Stressed Assets and how market responds to it. I believe originators would have a natural preference for this market based model in respect of small and mid sized loans, instead of going legal with attendant delay in admission and disposal of cases. The volume of stressed assets in market is set to increase and ARCs with nearly two decades resolution experience will have the head start and the preferred choice as Resolution Manager( ReM ) and provide additional business for ARC beyond AUM". Hari Hara Mishra, CEO, Association of ARCs in India. The RBI's draft guidelines issued in Apr 2025 propose a new route for bad loan resolution—securitisation through special purpose entities (SPEs), which can appoint resolution managers (ReMs), including ARCs. 'They can look to build asset-light, fee-based business models by leveraging the existing resolution infrastructure and expertise,' said Aesha Maru, associate director at Crisil Ratings. According to Crisil, such a pivot could help ARCs reduce dependence on acquisition-linked income and sustain operations through resolution fees. Long-term viability, Crisil noted, will depend on agility, innovation, and the ability to demonstrate value in a more competitive landscape.
India Gazette
2 days ago
- Business
- India Gazette
Private ARC AUM may drop 4-6% as redemptions outpace acquisitions: Crisil Ratings
New Delhi [India], July 10 (ANI): Assets under management (AUM) of private asset reconstruction companies (ARCs), as measured by security receipts (SRs) outstanding, is expected to decline 4-6 per cent to Rs 1.05 lakh crore this fiscal after sliding 15 per cent last fiscal, according to a latest report by Crisil Ratings. The rating agency said that the acquisition of stressed assets will continue to trend lower even as redemptions, which have improved in recent years, are likely to remain healthy, which will assist the ARCs. Additionally, with the securitisation of NPAs potentially disrupting the industry's status quo, ARCs may have to seek alternative opportunities to drive growth and profitability. The Crisil Ratings further added that with the Reserve Bank of India's (RBI) draft guidelines of April 2025 providing a framework for this new product, ARCs must prepare to pivot and adapt to a rapidly changing landscape. This fiscal, acquisitions by private ARCs will remain subdued. SRs issued last fiscal had already reduced 29 per cent to Rs 22,000 crore from Rs 31,000 crore in fiscal 2024, the report added. In the corporate segment, this was largely owing to limited opportunities given that gross non-performing assets (NPAs) for banks in the segment were at a multi-year low of less than 2 per cent as on March 31, 2025, and expected to remain subdued over the medium term, the report added. The report further said that despite the existence of a large stock of written-off corporate loan assets, private ARCs may not be very competitive, especially for large accounts, because of competition from the only government-supported ARC with its unique guarantee-backed SR model. As for retail assets, higher operational intensity due to stringent regulatory needs had reduced the interest among ARCs. Subha Sri Narayanan, Director, Crisil Ratings, said, 'However, retail acquisitions could see some pick-up this fiscal for two reasons. One, there is an uptick in delinquencies in certain segments, such as microfinance and unsecured loans. Two, the regulations have become more conducive. For instance, there is clarity now on appointing the selling entity as a servicer. This practice, commonly followed by ARCs, had raised eyebrows at the regulator. Moreover, ARCs can now settle retail loans under Rs 1 crore without IAC3 approval, simplifying the process.' But such acquisitions may not necessarily be AUM-accretive, given the relatively higher discount rates in retail pools, especially for unsecured loans. Nevertheless, private ARCs will continue to tap both corporate and retail assets based on opportunity and value. Apart from the quantum of acquisitions, the healthy trajectory of SR redemptions also had a bearing on AUM growth for ARCs. Lower vintage of assets in recent acquisitions, higher share of retail assets that typically churn faster, and more of optimally priced cash transactions were some of the factors driving this trend. In this milieu, private ARCs continued to see high SR redemptions at over Rs 28,600 crore last fiscal, outpacing acquisitions for the second consecutive year. Another aspect that ARCs have had to manage over the years is the evolving regulatory environment, the report added. The RBI published draft guidelines on a new product, i.e., the securitisation of stressed assets, on April 5, 2025, offering lenders an alternative to the existing ARC mechanism. This involves the selling entities -- banks and other institutions -- hawking their bad loans to special purpose entities (SPEs) that, in turn, will create securities and sell to investors. Such SPEs may appoint resolution managers (ReMs) to be responsible for the administrative process and recovery of the underlying stressed exposures. Only the RBI-regulated entities, i.e., scheduled commercial banks (excluding regional rural banks), non-banking financial companies (NBFCs; including housing finance companies) and ARCs can be appointed as ReMs. Aesha Maru, Associate Director, Crisil Ratings, stated, 'The new product could increase competition for ARCs when it comes to acquisitions. They can look to build asset-light, fee-based business models by leveraging the existing resolution infrastructure and expertise in stressed assets resolution and become ReMs under the new framework.' 'Implemented well, ARCs can reduce dependency on management fees and upside income as their primary revenue sources (which remain linked to the pace of acquisitions and redemptions) and replace that with fee income from direct transactions between selling institutions and investors. But the level of activity here would be a function of the asset quality in the financial sector,' Maru further added. (ANI)
Time of India
2 days ago
- Business
- Time of India
Private ARC AUM may drop 4-6% as redemptions outpace acquisitions: Crisil Ratings
Assets under management (AUM) of private asset reconstruction companies (ARCs), as measured by security receipts (SRs) outstanding, is expected to decline 4-6 per cent to Rs 1.05 lakh crore this fiscal after sliding 15 per cent last fiscal, according to a latest report by Crisil Ratings . The rating agency said that the acquisition of stressed assets will continue to trend lower even as redemptions, which have improved in recent years, are likely to remain healthy, which will assist the ARCs. Additionally, with the securitisation of NPAs potentially disrupting the industry's status quo, ARCs may have to seek alternative opportunities to drive growth and profitability. The Crisil Ratings further added that with the Reserve Bank of India's (RBI) draft guidelines of April 2025 providing a framework for this new product, ARCs must prepare to pivot and adapt to a rapidly changing landscape. This fiscal, acquisitions by private ARCs will remain subdued. SRs issued last fiscal had already reduced 29 per cent to Rs 22,000 crore from Rs 31,000 crore in fiscal 2024, the report added. Live Events In the corporate segment, this was largely owing to limited opportunities given that gross non-performing assets (NPAs) for banks in the segment were at a multi-year low of less than 2 per cent as on March 31, 2025, and expected to remain subdued over the medium term, the report added. The report further said that despite the existence of a large stock of written-off corporate loan assets, private ARCs may not be very competitive, especially for large accounts, because of competition from the only government-supported ARC with its unique guarantee-backed SR model. As for retail assets, higher operational intensity due to stringent regulatory needs had reduced the interest among ARCs. Subha Sri Narayanan, Director, Crisil Ratings, said, "However, retail acquisitions could see some pick-up this fiscal for two reasons. One, there is an uptick in delinquencies in certain segments, such as microfinance and unsecured loans. Two, the regulations have become more conducive. For instance, there is clarity now on appointing the selling entity as a servicer. This practice, commonly followed by ARCs, had raised eyebrows at the regulator. Moreover, ARCs can now settle retail loans under Rs 1 crore without IAC3 approval, simplifying the process." But such acquisitions may not necessarily be AUM-accretive, given the relatively higher discount rates in retail pools, especially for unsecured loans. Nevertheless, private ARCs will continue to tap both corporate and retail assets based on opportunity and value. Apart from the quantum of acquisitions, the healthy trajectory of SR redemptions also had a bearing on AUM growth for ARCs. Lower vintage of assets in recent acquisitions, higher share of retail assets that typically churn faster, and more of optimally priced cash transactions were some of the factors driving this trend. In this milieu, private ARCs continued to see high SR redemptions at over Rs 28,600 crore last fiscal, outpacing acquisitions for the second consecutive year. Another aspect that ARCs have had to manage over the years is the evolving regulatory environment, the report added. The RBI published draft guidelines on a new product, i.e., the securitisation of stressed assets, on April 5, 2025, offering lenders an alternative to the existing ARC mechanism. This involves the selling entities -- banks and other institutions -- hawking their bad loans to special purpose entities (SPEs) that, in turn, will create securities and sell to investors. Such SPEs may appoint resolution managers (ReMs) to be responsible for the administrative process and recovery of the underlying stressed exposures. Only the RBI-regulated entities, i.e., scheduled commercial banks (excluding regional rural banks), non-banking financial companies (NBFCs; including housing finance companies) and ARCs can be appointed as ReMs. Aesha Maru, Associate Director, Crisil Ratings, stated, "The new product could increase competition for ARCs when it comes to acquisitions. They can look to build asset-light, fee-based business models by leveraging the existing resolution infrastructure and expertise in stressed assets resolution and become ReMs under the new framework." "Implemented well, ARCs can reduce dependency on management fees and upside income as their primary revenue sources (which remain linked to the pace of acquisitions and redemptions) and replace that with fee income from direct transactions between selling institutions and investors. But the level of activity here would be a function of the asset quality in the financial sector," Maru further added.
Mint
2 days ago
- Business
- Mint
Private ARC AUM may drop 4-6% as redemptions outpace acquisitions: Crisil Ratings
New Delhi [India], July 10 (ANI): Assets under management (AUM) of private asset reconstruction companies (ARCs), as measured by security receipts (SRs) outstanding, is expected to decline 4-6 per cent to ₹ 1.05 lakh crore this fiscal after sliding 15 per cent last fiscal, according to a latest report by Crisil Ratings. The rating agency said that the acquisition of stressed assets will continue to trend lower even as redemptions, which have improved in recent years, are likely to remain healthy, which will assist the ARCs. Additionally, with the securitisation of NPAs potentially disrupting the industry's status quo, ARCs may have to seek alternative opportunities to drive growth and profitability. The Crisil Ratings further added that with the Reserve Bank of India's (RBI) draft guidelines of April 2025 providing a framework for this new product, ARCs must prepare to pivot and adapt to a rapidly changing landscape. This fiscal, acquisitions by private ARCs will remain subdued. SRs issued last fiscal had already reduced 29 per cent to ₹ 22,000 crore from ₹ 31,000 crore in fiscal 2024, the report added. In the corporate segment, this was largely owing to limited opportunities given that gross non-performing assets (NPAs) for banks in the segment were at a multi-year low of less than 2 per cent as on March 31, 2025, and expected to remain subdued over the medium term, the report added. The report further said that despite the existence of a large stock of written-off corporate loan assets, private ARCs may not be very competitive, especially for large accounts, because of competition from the only government-supported ARC with its unique guarantee-backed SR model. As for retail assets, higher operational intensity due to stringent regulatory needs had reduced the interest among ARCs. Subha Sri Narayanan, Director, Crisil Ratings, said, "However, retail acquisitions could see some pick-up this fiscal for two reasons. One, there is an uptick in delinquencies in certain segments, such as microfinance and unsecured loans. Two, the regulations have become more conducive. For instance, there is clarity now on appointing the selling entity as a servicer. This practice, commonly followed by ARCs, had raised eyebrows at the regulator. Moreover, ARCs can now settle retail loans under ₹ 1 crore without IAC3 approval, simplifying the process." But such acquisitions may not necessarily be AUM-accretive, given the relatively higher discount rates in retail pools, especially for unsecured loans. Nevertheless, private ARCs will continue to tap both corporate and retail assets based on opportunity and value. Apart from the quantum of acquisitions, the healthy trajectory of SR redemptions also had a bearing on AUM growth for ARCs. Lower vintage of assets in recent acquisitions, higher share of retail assets that typically churn faster, and more of optimally priced cash transactions were some of the factors driving this trend. In this milieu, private ARCs continued to see high SR redemptions at over ₹ 28,600 crore last fiscal, outpacing acquisitions for the second consecutive year. Another aspect that ARCs have had to manage over the years is the evolving regulatory environment, the report added. The RBI published draft guidelines on a new product, i.e., the securitisation of stressed assets, on April 5, 2025, offering lenders an alternative to the existing ARC mechanism. This involves the selling entities -- banks and other institutions -- hawking their bad loans to special purpose entities (SPEs) that, in turn, will create securities and sell to investors. Such SPEs may appoint resolution managers (ReMs) to be responsible for the administrative process and recovery of the underlying stressed exposures. Only the RBI-regulated entities, i.e., scheduled commercial banks (excluding regional rural banks), non-banking financial companies (NBFCs; including housing finance companies) and ARCs can be appointed as ReMs. Aesha Maru, Associate Director, Crisil Ratings, stated, "The new product could increase competition for ARCs when it comes to acquisitions. They can look to build asset-light, fee-based business models by leveraging the existing resolution infrastructure and expertise in stressed assets resolution and become ReMs under the new framework." "Implemented well, ARCs can reduce dependency on management fees and upside income as their primary revenue sources (which remain linked to the pace of acquisitions and redemptions) and replace that with fee income from direct transactions between selling institutions and investors. But the level of activity here would be a function of the asset quality in the financial sector," Maru further added. (ANI)
New Indian Express
26-06-2025
- Business
- New Indian Express
New project finance norms to strengthen lenders' guardrails
MUMBAI: The Reserve Bank's final directions on project financing will help strengthen the guardrails against risk in project financing and also harmonise regulations for all lenders, besides easing credit cost concerns as they seek only lower provisioning, that too with prospective applicability. The final directions, which will come into effect from October 1, 2025, asks only 1-1.25 per cent provisions from the date of commencement of commercial operations (DCCO) as against 5% proposed in the draft earlier. The new guidelines cover both infrastructure and non-infrastructure projects, including commercial real estate -residential housing- and apply to banks, non-banking financial companies, housing finance companies, urban cooperative banks and all-India financial institutions. The draft guidelines had laid out very stringent provisioning norms, with 5% provisioning on all under-construction projects, which went up to as high as 7.5% in some scenarios. Even for operational projects, provisioning level was mandated at 1% or 2.5% depending on the extent of operating cash flows of the project "Compared to the draft of May 2024, the final directions improve the ease in doing business for lenders. The provisioning requirements are significantly lower, not only in the case of under-construction projects but also for operational projects. Additionally, the guidelines are applicable only on a prospective basis. As a result, the impact on credit costs would be well below what was envisaged earlier," Subha Sri Narayanan, a director with Crisil Ratings said in a note Thursday.
