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Edelweiss Asset Reconstruction Company (EARC), currently India’s largest private asset reconstruction firm, is increasing its investment to acquire more stressed retail loans from banks and non-bank lenders. Sales of stressed loans from the retail segment are picking up with lenders looking to resolve the problem of growing non-performing assets (NPAs) on their retail loan books.

According to Edelweiss ARC MD & CEO RK Bansal, the company currently has around five lakh accounts under its retail portfolio and has already become the largest player in the retail ARC space. “Retail NPA sales are picking up and many banks and NBFCs are looking to resolve the retail NPAs,” Bansal told FE.

“Banks’ wholesale loan books have already seen huge NPAs and they are now in resolution mode for these stressed assets. New NPAs in wholesale are less. We are seeing a higher level of NPAs now in retail, whether it is housing loans, loans against property, MSME loans or unsecured loans like personal loans and credit cards,” he said.

For the quarter ended September, EARC’s assets under management (AUM) stood at Rs 42,800 crore against Rs 42,400 crore in the same period a year ago. At the end of the second quarter this fiscal, capital employed for wholesale assets was at Rs 5,000 crore compared to Rs 5,200 crore for the corresponding period last fiscal. Notably, capital employed for retail assets rose to Rs 500 crore from Rs 100 crore a year ago.

“We feel that retail will grow much faster, at least for the next two-three years till the wholesale cycle comes back. Because as of now, banks have not lent much in wholesale on the corporate side for the last two-three years. The lending has been less because banks have been struggling with NPAs. So once the lending picks up, capex cycle will pick up. The cycle will take about two-three years more for fresh NPAs on the corporate side,” Bansal said.

Edelweiss ARC started its retail bad loans management operations around three years ago. “Currently, the AUM for our retail portfolio is around Rs 2,000 crore. Slowly, AUM for retail will grow. Retail AUM does not grow that fast because retail loans are very small and repayment is much faster than wholesale. So AUM keeps on coming down faster in retail,” he said.

Asked whether the National Asset Reconstruction Company (NARCL), the so-called bad bank, will reduce the growth opportunity for existing ARCs, Bansal said, “The answer is no. Because anyway these cases (transfer of toxic assets by banks) were not such where ARCs were interested. Because these cases are under the 15:85 structure, while in the case of private sector ARCs typically banks are not selling nowadays under 15:85. They are selling it to government ARCs, because they also know that nobody will pay them cash for these assets.”

NARCL is expected to witness the transfer of the first batch of toxic assets worth about Rs 90,000 crore by January 2022.

For the second quarter this fiscal, Edelweiss ARC’s gross revenue grew 7.4% year-on-year to Rs 231 crore, while profit after tax soared by 52.25% y-o-y to Rs 70 crore. The company witnessed robust recoveries of around Rs 740 crore from the wholesale portfolio and around Rs 160 crore from the retail portfolio.

Edelweiss Financial Services’ stake in the ARC is currently 60%, while CDPQ Private Equity Asia, part of Canada’s pension fund CDPQ, holds 20%.