Asset reconstruction companies significantly increased their bad loan purchases in the June quarter, acquiring ₹26,304 crore of non-performing assets. According to data from the Association of ARCs, this represents a 56% increase from the previous year's figure of ₹16,876 crore. The current quarter's acquisition is nearly double the ₹13,852 crore that ARCs purchased in the first quarter of FY25, demonstrating the growing market for stressed asset resolution.
The increased ARC activity coincides with significant improvement in the banking sector's asset quality metrics. As reported by The Economic Times, the gross non-performing asset ratio of the banking system fell to 1.8% in FY26 from 2.8% in FY24. This substantial decline reflects the ongoing resolution of legacy stressed assets that banks have been addressing for several years, with transactions increasingly being settled through cash payments and security receipts.
The sharp increase in bad loan sales to ARCs occurs despite the overall decline in banks' bad loan ratios, as reported by The Economic Times. A large portion of the loans sold are legacy stressed assets that lenders have been trying to resolve for several years. According to a white paper released by Great Lakes Institute of Management in February 2025, gross NPLs fell to 2.2% of advances in 2025 from 11.2% in 2018, partly due to fewer fresh slippages and banks writing off bad loans. As of March 2025, gross NPLs stood at ₹4.32 lakh crore, while written-off loans were ₹7.88 lakh crore, bringing the total stressed-loan stock to ₹12.20 lakh crore.
The rise in bad loan sales has been facilitated by a shift in transaction structures, as reported by The Economic Times. A larger number of deals now involve cash payments, with some transactions structured through security receipts where payment is split between cash and SRs, with the cash proportion being higher. This change in payment structure has made transactions more attractive to ARCs and enabled more efficient resolution of stressed assets in the banking system.
