ARC assets set to drop 7-10% this FY amidst stiff competition from NARCL: CRISIL
NPAs) from both corporate as well as private sector and increased competition from the government backed National Asset Reconstruction Co Ltd (NARCL) will lead to fall in assets reconstruction companies' (ARCs) AUM this fiscal, a report by Crisil Ratings said.
Assets under management (AUM) of ARCs, as measured by security receipts (SRs) outstanding, is expected to fall by 7% to 10% this fiscal as acquisitions will trend lower, while redemptions, which have strengthened in recent years, are likely to remain healthy. SRs are issued by ARCs while buying NPAs from banks and NBFCs. These are redeemed when the ARC manages to recover from the defaulter.
CRISIL estimates private ARC AUM at Rs 1.2-1.25 lakh crore by the end of fiscal 2025, down from Rs 1.35 lakh crore the previous fiscal. ARC AUM has risen consistently from Rs 1.08 lakh crore in fiscal 2020 to Rs 1.35 lakh crore in March 2024, Crisil data shows.
Faster redemption of SRs has also been a factor in reducing ARC AUM. Crisil data shows that the last fiscal year was the first time when SR redemptions of private ARCs were similar to SR issuances, resulting in a flattish AUM.
Private ARCs saw their highest level of SR redemption, at over Rs 31,000 crore, against Rs 27,000 crore in fiscal 2023. «47% of SRs issued in fiscal 2022 were already redeemed within two years, i.e. by March 2024. This contrasts with earlier periods—for acquisitions done between fiscals 2016 and 2018, the redemption range was 8-28% in a two-year period,» the report said.
Ajit Velonie,
