IREDA Q1FY26 Results: Net Profit Down 35.6% YoY to ₹246.88 Crore

Private asset reconstruction companies' assets under management (AUM) are expected to shrink 4-6% to ₹1.05 trillion in FY26 due to subdued acquisitions of stressed loans and potential disruptions from loan securitisation. The acquisition of stressed loans may remain subdued amid healthy asset quality profiles, and securitisation of non-performing loans may disrupt the industry's business dynamics. Retail assets have also seen reduced interest among ARCs due to stringent regulatory requirements.

Private asset reconstruction companies (ARCs) are poised to see a significant reduction in their assets under management (AUM) in the fiscal year 2026 (FY26). According to CRISIL Ratings, the AUM is expected to shrink by 4-6% to ₹1.05 trillion, primarily due to subdued acquisitions of stressed loans and potential disruptions from loan securitisation [1].

The slowdown in acquisitions is driven by limited opportunities, as gross non-performing assets (NPAs) for banks in the corporate loan segment are at a multi-year low of less than 2% as of March 2025 and are expected to remain subdued over the medium term [1]. Despite the existence of a large stock of written-off corporate loan assets, private ARCs may not be very competitive in this space, especially for large accounts, because of competition from the only government-supported ARC with its unique guarantee-backed security receipts (SRs) model [2].

In the retail space, higher operational intensity due to stringent regulatory requirements has reduced interest among ARCs. However, CRISIL sees some signs of revival this year, driven by an uptick in delinquencies in certain segments, such as microfinance and unsecured loans, and regulatory clarity around appointing selling entities as servicers [1].

The Reserve Bank of India’s (RBI) draft guidelines issued in April 2025 on securitisation of stressed assets could reshape the industry. Under this framework, lenders may sell NPAs to special purpose entities (SPEs), which will issue securities to investors and appoint resolution managers (ReMs), which could be banks, non-banking financial companies (NBFCs), and ARCs to oversee recoveries [1]. This new product could increase competition for ARCs when it comes to acquisitions, potentially forcing them to pivot to asset-light, fee-based business models by leveraging their resolution expertise [3].

Private ARCs continued to see high SR redemptions at over ₹28,600 crore in FY25, surpassing acquisitions for the second consecutive year. Factors driving this include a lower vintage of assets, higher retail asset share with faster churn, and optimally priced cash transactions [3].

References:
[1] https://bfsi.financialexpress.com/news/aum-of-arcs-may-shrink-6-in-fy26-as-redemptions-outpace-acquisitions-crisil
[2] https://www.business-standard.com/industry/news/pvt-sector-debt-recast-firms-aum-shrink-crisil-125071001186_1.html
[3] https://www.businessworld.in/article/private-arc-aum-seen-falling-as-redemptions-outpace-acquisitions-crisil-562984