Challenges mount for ARCs as retail bad loans swell

ASSET RECONSTRUCTION COMPANIES (ARCs) are facing new challenges with the rise of retail non-performing assets (NPAs). While ARCs have a proven track record in resolving corporate NPAs, they are finding it increasingly challenging to handle retail bad loans.

- SACHIN KUMAR

Absence of a widely-accepted pricing model for retail NPAs, high transaction costs, difficulty in asset valuation and limited ability to directly engage with borrowers at a granular level pose challenges in effective resolution of retail stressed assets. One of the major hurdles ARCs are facing is the absence of a standardised and widely acceptable pricing model for retail NPAs.

The early offshoot of stress in unsecured retail is visible and likely to grow further. Unlike corporate NPAs, where valuation models are based on financial statements, collateral and future cash flow potential, retail NPAs lack similar metrics," said Hari Hara Mishra, CEO of the Association of ARCs in India.

The fragmented nature of these loans, coupled with uncertainties in recovery, makes it challenging to determine a fair price."