ARCs to drive on Retail and MSME asset buying in FY24: India Ratings

New Delhi, Feb 28 (KNN) In the fiscal year of 2023-24, the business of asset reconstruction companies (ARCs) will be driven by acquisition of stressed loans in the retail and MSMEs segments, as per India Ratings (Ind-Ra).

It will be in the backdrop of planned implementation of Expected Credit Loss (ECL) framework.

There is also likely to be a rise in asset sale due to the application of the Prompt Corrective Action (PCA) framework for non-banking finance companies (NBFCs).

The ARC sector's AUM growth would be heavily reliant on small-ticket retail and MSME non-performing assets (NPAs) because of the expected muted stress addition in large-ticket corporate assets, said the credit rating agency.

Ind-Ra has assigned a stable rating outlook to asset reconstruction companies (ARCs) for FY24.

With rising inflation and interest rates, MSME and retail borrowers could face margin pressure, leading to a build-up in delinquencies which could drive acquisitions for the sector.

In past, NBFCs’ migration to Indian Accounting Standards led to a rise in provisions for unsecured lenders for stage 1 and stage 2 assets. There could be a similar trend playing out for banks with a larger unsecured book.

This could lead to early asset sale to ARCs in the retail and MSME segment, post the adoption of the proposed expected credit loss framework for banks, agency said in a statement.  (KNN Bureau)