AUM of ARCs May Shrink 6% in FY26 as Redemptions Outpace Acquisitions: Crisil

Assets under management (AUM) of private asset reconstruction companies (ARCs), measured by outstanding security receipts (SRs), is expected to shrink 4–6 per cent to around Rs 1.05 lakh crore in FY26, after having already declined 15 per cent in FY25, according to CRISIL Ratings. 

The pressure on AUM stems primarily from muted asset acquisitions even as SR redemptions remain strong for the second consecutive year. Last fiscal, redemptions exceeded Rs 28,600 crore, outpacing acquisitions, with SR issuance dropping sharply by 29 per cent to around Rs 22,000 crore from around Rs 31,000 crore in FY24. 

The slowdown in corporate acquisitions is driven by limited opportunities, Crisil said. Gross NPAs in the corporate loan segment fell to a multi-year low of under 2 per cent as of March 2025 and are expected to stay subdued in the medium term. Even though a large stock of written-off corporate loans exists, private ARCs find it difficult to compete in this space due to the dominance of the government-backed ARC, which operates with a unique guarantee-supported SR structure. 

In the retail space, regulatory stringency had earlier dampened interest. However, CRISIL sees some signs of revival this year.  

Also read: Financial Inclusion Can't be Pretext for ‘Financial Exploitation’: Sitharaman Warns NBFCs Against Aggressive Lending

“Retail acquisitions could see some pick-up this fiscal for two reasons. One, there is an uptick in delinquencies in certain segments, such as microfinance and unsecured loans. Two, the regulations have become more conducive,” said Subha Sri Narayanan, Director, CRISIL Ratings.  

She noted that regulatory clarity around appointing selling entities as servicers and the ability to settle sub-Rs 1 crore retail loans without committee approval has simplified transactions. 

Still, retail deals may not significantly lift AUM, given high discounting, especially in unsecured loan pools. CRISIL expects private ARCs to selectively pursue both corporate and retail opportunities based on value and viability. 

Also read: India Inc’s Q2 Deal Value Drops 20%, But Volumes Jump 23% -- What’s Behind the Shift?

At the same time, the regulatory landscape is evolving. The Reserve Bank of India’s draft guidelines issued in April 2025 on securitisation of stressed assets could reshape the industry. Under this framework, lenders may sell NPAs to special purpose entities (SPEs), which will issue securities to investors and appoint resolution managers (ReMs), which could be banks, NBFCs and ARCs, to oversee recoveries. 

“The new product could increase competition for ARCs when it comes to acquisitions,” said Aesha Maru, Associate Director, CRISIL Ratings. “They can look to build asset-light, fee-based business models by leveraging the existing resolution infrastructure and expertise in stressed assets resolution and become ReMs under the new framework. Implemented well, ARCs can reduce dependency on management fees and upside income as their primary revenue sources.”