Banks and NBFCs step up stressed asset sales to clean up books
Mumbai, Nov 12, 2025
Synopsis
Lenders aggressively sold bad loans in September quarter. Retail bad loan sales nearly doubled. Corporate bad loan sales also saw a significant increase. This move reflects a focus on cleaning balance sheets. The trend is expected to continue in upcoming quarters. Asset reconstruction companies are adapting to this shift.
Reflecting a sharper focus on balance sheet hygiene, both banks and non-bank lenders accelerated the offloading of stressed assets during the September quarter. The sale of retail bad loans to asset reconstruction companies (ARCs) nearly doubled in three months, rising to ₹3,118 crore at the end of the September quarter from ₹1,703 crore in June, according to industry data.
The sale of non-performing corporate loans also increased by about 34%, reaching ₹3,603 crore in the September quarter compared with ₹2,685 crore in the previous quarter. In total, bad loan sales amounted to ₹6,721 crore at the end of September, up from ₹4,388 crore in June. The total dues involved stood at ₹37,381 crore in September versus ₹16,876 crore in June.
"This clearly reflects lenders' intent to clean up their balance sheets and present pristine-quality books to investors, while focusing on improving credit growth instead of spending time and energy on bad loans with low recovery prospects," said Prakash Agarwal, Partner at Gefion Capital. "We also expect a higher volume of bad loan sales in the December and March quarters, while the June quarter is typically a slower period."
The sale of corporate bad loans has been steadily declining, in line with the gradual shift in the composition of bank credit over the past decade - from industrial and corporate loans towards retail lending. The growing share of retail loans in stressed assets mirrors this shift in overall credit dynamics.
Between March 2015 and March 2025, credit deployment to the industrial sector rose from ₹26.65 lakh crore to ₹39.37 lakh crore, marking a 48% increase. During the same period, personal loans surged from ₹11.95 lakh crore to ₹59.52 lakh crore, a 398% jump, highlighting the rapid expansion of retail lending over the decade.
"ARCs are reassessing their business models based on this shift in market dynamics from corporate to retail and are working on strategy, infrastructure, and skill sets to align with this paradigm change," said Hari Hara Mishra, CEO, Association of ARCs in India. "After negative growth in assets under management (AUM) for the ARC sector in the first quarter of 2025, as well as at the end of March 2025, it turned positive in September 2025."
[The Economic Times]
