New Delhi, March 31 Asset reconstruction companies (ARCs) are likely to see a rise of 700 basis points in the cumulative recovery rate of security receipts (SRs) in the upcoming fiscal, bringing the total to about 90 percent, according to a report.
Healthy performance and the resolution of larger, stressed assets in key infrastructure sectors, such as real estate, roads, and power, will be the primary drivers for higher recoveries, Crisil Ratings said in a report.
Furthermore, a slowdown in new acquisitions due to the limited supply of fresh distressed assets from banks and non-banking financial companies (NBFCs), resulting in a slower increase in cumulative SRs issued, will also contribute to improving the recovery ratio, it added.
In fact, the assets under management (AUM) of private ARCs have declined by 4 percent since fiscal 2024, as the redemption of SRs has outpaced acquisitions, and this trend is expected to continue in the medium term, the report noted.
At this juncture, what can potentially arrest the declining AUM trend is a broadening of the addressable pool of stressed assets for ARCs through measures, such as enabling acquisitions from alternative financiers, it said.
Recoveries continue to be led by corporate assets (92 percent of expected recoveries in fiscal 2027), with the cumulative recovery rate expected to reach 90-95 percent next fiscal (from 85 percent estimated this fiscal), the agency added.
The recovery in retail asset pools (8 percent of expected recoveries) is expected to inch up to 80-85 percent next fiscal (from 78 percent estimated this fiscal).
"An analysis of about 350 trusts with outstanding SRs of Rs 33,000 crore across our rated corporate and retail pools indicates as much," it said.
Healthy SR redemptions, coupled with a declining supply of fresh stressed asset pools, are expected to keep growth subdued for ARCs.
The supply of new stressed assets will likely be lower as the overall gross non-performing assets in the banking system (banks and NBFCs) is expected to remain low next fiscal at 2.3-2.5 percent. This is likely to pose growth challenges for ARCs, it added.
In this context, it said, the implementation of the Sudarshan Sen Committee’s proposal to allow ARCs to tap into stressed asset pools of debt alternative investment funds (AIFs), debt mutual funds, and other financiers can aid diversification in sourcing of stressed assets.