(MENAFN- KNN India) New Delhi, Nov 11 (KNN) After two consecutive quarters of decline, India's bad loan recovery business has posted a modest rebound, led by a sharp rise in retail loan sales to asset reconstruction companies (ARCs).

The ARC portfolio turned positive in the September 2025 quarter, coinciding with banks accelerating NPA sales ahead of the RBI's new expected credit loss (ECL) framework.

The new framework mandates provisioning based on default probability rather than loan duration. The shift is driving lenders to offload assets earlier and improve reported balance sheet health.

According to data compiled by the Association of ARCs in India (AARCI), fresh ARC acquisitions rose to Rs 6,721 crore in the September quarter, compared to Rs 4,388 crore in the previous quarter.

Retail loan acquisitions nearly doubled to Rs 3,118 crore, up from Rs 1,703 crore, reflecting a shift in the composition of distressed assets, as reported by the Times of India.

Over the past decade, personal loans have expanded by 398 per cent (March 2015–March 2025), while industrial credit grew only 48 per cent, indicating a structural change in India's credit mix.

According to Hari Hara Mishra, CEO, AARCI, competitive pressures and investor scrutiny are driving banks and NBFCs, particularly listed entities, to expedite the sale of non-performing assets (NPAs).

“Sale to ARCs results in quick exit and a healthier balance sheet, vis-à-vis indefinite wait for realisation through prolonged litigation,” Mishra said, noting that lenders increasingly view ARC sales as a practical and effective resolution tool when valuations align.

Analysts say the uptick signals a behavioural shift among financial institutions, as they prioritise operational efficiency and market perception over long-drawn recovery processes.

While a full-fledged revival of the ARC sector may take time, the latest data indicates indicating cautious optimism in India's evolving bad loan ecosystem.

(KNN Bureau)

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