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Informist, Thursday, Jul. 10, 2025

MUMBAI – Credit rating agency Crisil Ratings said it expects the assets under management of private Indian asset reconstruction companies to decline 4-6% to INR 1.05 trillion in the financial year 2025-26 (Apr-Mar). It attributed the potential decline to lesser acquisitions of stressed assets, even as redemptions are expected to remain healthy, having improved in recent years. The assets under management of these companies had slipped 15% in FY25. The industry may need to adapt due to the potential disruption caused by securitisation of non-performing assets, prompting asset reconstruction companies to explore alternative growth and profitability opportunities, according to the report.

"With the Reserve Bank of India's draft guidelines from April 2025 providing a framework for this new product, asset reconstruction companies must prepare to pivot and adapt to a rapidly changing landscape," Crisil said in its report. "This fiscal, acquisitions by private asset reconstruction companies will remain subdued. Security receipts issued in FY25 had already reduced 29% to INR 220 billion from INR 310 billion in FY24."

On Apr. 5, the central bank published draft guidelines on the securitisation of stressed assets, providing lenders with an alternative to the existing asset reconstruction mechanism. Under this framework, banks and other institutions can sell their non-performing loans to special purpose entities which will then create securities and sell to investors. These special purpose entities may appoint resolution managers to oversee the administrative process and recovery of the underlying stressed assets. Only RBI-regulated entities, such as scheduled commercial banks excluding regional rural banks, non-banking finance companies, housing finance companies, and asset reconstruction companies, are eligible to be appointed as resolution managers.

On the corporate segment side, opportunities are limited largely because gross non-performing assets are at a multi-year low of less than 2% as of Mar. 31. Opportunities are expected to remain subdued over the medium term, Crisil said in the report, adding that "despite the existence of a large stock of written-off corporate loan assets, private ARCs may not be very competitive here, especially for large accounts, because of competition from the only government-supported ARC with its unique guarantee-backed security receipt model". As for retail assets, higher operational intensity stemming from stringent regulatory requirements has reduced interest among asset reconstruction companies.

"However, retail acquisitions could see some pick-up this fiscal (FY26) for two reasons," Subha Sri Narayanan, director, Crisil Ratings, said in the report. "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 asset reconstruction companies, had raised brows at the regulator. Moreover, asset reconstruction companies can now settle retail loans under INR 10 million without Internal Asset Committee approval, simplifying the process."

According to the rating agency's report, private asset reconstruction companies will continue to tap both corporate and retail assets based on opportunity and value. Crisil said private asset reconstruction companies continued to see high redemption of security receipts of over INR 286 billion in FY25, outpacing acquisitions for the second consecutive year.

Another aspect that asset reconstruction companies have had to manage is the evolving regulatory environment over time. "Private asset reconstruction companies have had to continuously realign their business models over time," the report said. "What will drive long-term sustainability for them is the demonstration of value they bring by being agile and embracing innovation, even as they continue to focus on enhancing both the extent and pace of resolutions."  End

Reported by Vaishali Tyagi

Edited by Nishant Maher

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