Pvt asset reconstruction cos moving to retail loans as national bad bank nearing reality

Mumbai: With RBI-mandated loan restructuring and moratoriums ebbing the tide of bad loans among corporates, ARCs have been banking on retail loans to drive business in the pandemic-hit FY21 and player like Edelweiss ARC expects the industry-wide retail assets under management to hit nearly half of the overall pie.

The Rs 1.5-lakh-crore asset reconstruction market comprises over a dozen players led by Edelweiss ARC that controls over 30 per cent of the market, and the soon-to-be operationalised national bad bank, to be funded mostly by public sector banks and guaranteed by the government, will add to the clutter of the market and has private players fearing the government guarantee unlevelling their fields.

The pandemic-hit FY21 has seen tepid overall growth for asset reconstruction companies (ARCs), but retail loan portfolio grew faster adding at least 25 per cent more to the assets under management (AUM).

According to industry players, lenders like HDFC Bank, Indusind Bank, IDBI Bank, Federal Bank and non-banks like Bajaj Finance among others have been aggressively selling their stressed retail books — auto, home and personal loans as well credit cards dues to ARCs like Edelweiss, Phoenix ARC owned by Kotak Mahindra Bank, JN Financial and Reliance ARC among others since the past few years. While Reliance ARC snaps up only retail loans, for Phoenix ARC comprises 20 per cent of its Rs 8,500-crore total book/AUM.

Rashesh Shah, chairman and chief executive of Edelweiss Financial Services Group whose ARC arm sits over an AUM of Rs 40,8000 crore, and has made a recovery of Rs 5,400 crore in FY21 from 179 accounts, sees over the next two years around 50 per cent of overall ARC assets coming in from retail loans.

The retail portfolio of Edelweiss ARC is around 10 per cent now, but it will be "deleveraging the corporate portfolio and focusing on retail going forward, while at the industry level it's about 20 per cent. But I see this touching almost half of the market over the next two years", Shah said. Going forward, focus will be more on snapping up retail loans as it gives higher margins and better recovery rates, Shah added.

"For the past two years retail NPAs have been rising, while corporate NPAs coming down due to the moratorium and restructuring allowed by the Reserve Bank. This has seen interest rising among ARCs for retail assets," Sanjay Tibrewala, the chief executive of Phoenix ARC, said on Sunday.