Retail, MSME bad loans match ARCs' corporate purchases
ARC Association (IAA) shows that as much as 50% of the assets bought by bad loan aggregators in the quarter ended June 2023 is from retail and MSME and mid-corporate segments.
This is a change from the cumulative numbers as of March which shows that as much as 78% of the loans bought by ARCs are from the corporate sector. Bankers and ARCs say the change in the nature of new bad loans will need them to tweak the recovery process.
Data from IAA shows that ARCs issued a total of ₹3,073 crore of security receipts (SR) in the quarter ended June 2023 to buy retail, MSME and mid corporate loans, almost identical to the ₹3,075 crore they paid to buy corporate loans.
The numbers are in contrast to the historical balance.
For example, outstanding corporate-backed SRs at the end of March were at ₹1.38 Lakh crore or 78% of the total SRs in the market, IAA numbers show.
Hari Hara Mishra, CEO of IAA said this is one of the emerging trends in the distressed debt market. «In a rising interest rate scenario with inflation pressure leading to increased input costs, there will be an acceleration in NPA in SME as they do not have adequate buffer or access to debt market for refinance.
In retail, unsecured loans usually have a much higher rate than secured ones, and income remaining the same, there will be strain in servicing higher borrowing cost that may lead to rise in delinquency in unsecured loans,» Mishra said.
ARC executives say the trend may pick up pace and is likely to continue for at least two years. «Now with the NARCL in the picture most of the corporate loans will go to them.
