Asset reconstruction companies (ARCs) are seeing greater interest from non-bank lenders as they push clean up of their balance sheets and free up capital for fresh lending, industry executives said. The shift is also leading to ARCs getting more retail portfolios and smaller-ticket loans, they added. According to these experts and industry data, the migration is being fueled by a squeeze in corporate debt availability, faster deal execution by NBFCs, and expanding retail stress.
“There is now a gradual shift towards retail loans,” said Hari Hara Mishra, chief executive of the Association of ARCs in India. “Retail is growing at a much faster rate. Because of that, there are more transactions originated by NBFCs (non-banking financial companies), since their books have more stress in retail.”
Lenders sell stressed loans to ARCs at a discount, either in exchange for cash or a mix of cash and security receipts (SRs) that are redeemable as and when the ARC recovers a loan, with the regulatory limit set at eight years.
According to data from the industry association, SRs issued against retail loans comprised 35% of total receipts in fiscal year 2026 (FY26), as against 25% in FY25, pointing to the growing share of retail loan purchases by ARCs.
Although an industry-wide breakdown of bank and non-bank loans sold to ARCs is unavailable, the shift is visible on the books of individual ARCs. For instance, Asset Reconstruction Company (India) Ltd (Arcil), one of India’s largest ARCs, acquired roughly ₹5,959 crore worth of financial assets in FY26. Of that total, banks accounted for about a quarter (around ₹1,493 crore), while non-bank financiers accounted for ₹4,466 crore of the stressed assets sold to Arcil, according to its latest annual report.
By comparison, out of the total ₹3,975.87 crore in financial assets acquired by Arcil in FY25, bank acquisitions stood at ₹896.99 crore, while non-banks and other sources accounted for ₹3,078.88 crore.
The ARC industry's assets under management, measured by outstanding security receipts, fell 1.12% year on year to ₹1.33 trillion from ₹1.34 trillion in March 2026, as per data by the Association of ARCs. Crisil Ratings expects industry AUM growth to remain “tepid”, though it hasn’t projected specific figures.
A senior executive involved in NBFC stressed-asset sales noted that the pivot toward retail is also driven by the limited availability of corporate assets. Because the National Asset Reconstruction Company Limited (NARCL) dominates corporate stressed loans, private ARCs are increasingly targeting retail portfolios instead, he added. NARCL, India’s ‘bad bank’, was incorporated in July 2021 to take over large stressed assets.
Executives said that non-banks are showing more flexibility than banks on these transactions, aiding quicker sales. “This trend is supported by NBFCs’ flexible approach towards structuring transactions on both cash or SR basis, more realistic pricing expectations, quicker decision making, and a greater focus on capital efficiency, as well as timely resolution of stressed exposures through the ARC route,” said Srinivasan Viswanathan, managing director and chief executive of JM Financial Asset Reconstruction Co.
Echoing this, Suresh Khatanhar, group chief executive at distressed resolution provider Areion Group, said ARCs are seeing a rise in stressed assets coming from NBFCs and housing finance companies alongside traditional banks. This surge is propelled by stricter asset-quality recognition rules, capital and liquidity constraints, and lenders' need to free up and redeploy capital, he added. “For ARCs, these pools can offer attractive opportunities but require sharper underwriting, valuation and resolution capabilities,” he said.
Nirmal Gangwal, founder and chairman of single-family office Brescon, said the shift also reflects NBFCs' growing role in credit disbursement and their exposure to segments such as unsecured lending and private credit. “NBFCs have been largely active in the private credit market and in unsecured loans. So, going forward, one can expect more business from NBFCs to ARCs,” said Gangwal, a turnaround and restructuring veteran.
The shift is changing how ARCs operate. A senior executive at a major ARC noted that while the industry previously focused on high-value, individual corporate accounts, it now manages higher volumes of smaller retail loans. Consequently, transaction numbers have risen, even as total deal value remains largely unchanged.
“These loans by NBFCs mostly comprise of recent vintage NPAs,” the executive said, explaining why assets acquired from NBFCs typically come with shorter redemption periods.
Executives also noted that this shift toward larger volumes of smaller loan portfolios forces ARCs to build stronger capabilities for assessing, pricing, and resolving granular retail debt.
Viswanathan said that assets originated by non-banking financial companies (NBFCs) will likely claim a growing share of the ARC market as credit growth, regulatory mandates, and capital considerations drive lenders toward specialized resolution platforms.
