Retail banks’ non-performing loans are likely to increase as some restructured loans could become non-performing assets again, said RK Bansal, MD and CEO of Edelweiss Asset Reconstruction Company (EARC).

To minimize losses, banks are outsourcing their bad loans to Asset Restructuring Companies (ARC), and the number is rising.

According to ARC industry data, around £2,000bn of the capital book balance was allocated to ARCs in FY20 in FY20, while the figure rose to £6,500bn in FY21.

During the first 9 months of FY22 the ARCs were allocated approximately 7,000 crore of general ledger balance. However, the situation in the retail lending segment has gradually improved over the past 6 months, except for a spike in January due to the third wave of COVID-19, ARC industry executives said.

“During that time, two things have happened: there have been improvements in debt collection procedures, and some personal loans have also been restructured by lenders,” Mr Bansal said.

“However, some of these restructured loans could go bad again, which will be reflected in the quarterly figures for March and June,” he said.

Of the ₹7,000 crore of non-performing loans sold to ARCs during the first nine months of FY22, approximately 50% had been purchased by EARC.

According to Trans Union-Cibil data [provided by EARC]As of September 30, 2021, the GNPA ratio for secured mortgages (home loans, home loans) was 3.7%, while for secured non-mortgage-backed (auto and gold loans) it was 9.6%.

For unsecured loans such as personal loans, educational loans, outstanding credit cards and consumer, mudra and MFI loans, the GNPA ratio was 8.47%.

In less than three years, EARC has seen its retail portfolio grow through the acquisition of approximately 7,000 crore of principal debt from a large number of banks and NBFCs, who had ceded their NPAs both in cash and through the ARCs route security receipts.

The retail portfolio includes servicing a large number of troubled borrowers in different regions who may have been going through economic problems exacerbated by the pandemic, it said.

“The country is facing a catastrophic situation for an extended period of two years due to Covid-19 which has hit everyone including us,” Mr Bansal said.

“We’ve seen recovery numbers go down, distress with borrowers increasing in recent years, and the movement of people and process machinery slowing down,” he added.