India’s Asset Reconstruction Companies are betting big on small borrowers. A strategic shift toward retail and MSME segments could be just the balance the sector needs as big-ticket corporate recoveries slow and operational risk grows.
A Strategic Shake-Up in the ARC Playbook
India’s ARCs have long been synonymous with salvaging massive corporate messes. Think power plants, ports, steel giants gone bust. But something’s changed.
After two decades of cleaning up corporate disasters, ARCs are now tweaking the formula. They’re heading downstream—to smaller businesses and individual borrowers. It’s a bold move, and one that could smoothen cash flows and help them avoid the feast-or-famine cycle corporate recoveries often bring.
The numbers say a lot. In FY24 alone, ARCs picked up stressed assets worth ₹1.57 lakh crore. That’s out of a total of nearly ₹10 lakh crore since their inception in 2002. It’s a staggering scale—but also a sign that the model has to evolve.
Predictable Returns Beat One-Time Windfalls
Here’s the thing: corporate asset resolution is high-stakes poker. When it pays off, it’s big. But it takes time, sometimes years. And the dry spells can hurt. That’s why retail and MSME assets are starting to look a lot more appealing.
Retail loans and MSME credit are smaller, yes—but more stable.
One ARC CEO explained it like this: “Corporate recoveries are lumpy. Retail is steady.” That steady part? It means cash flows every month, less volatility, fewer sleepless nights.
• Retail and MSME assets spread risk better across portfolios
• Recovery processes are faster, often through negotiated settlements
• AI and data analytics make predicting defaults easier
Still, it’s no cakewalk. Retail debt collection means high volumes and high touch—lots of phone calls, field agents, and customized repayment plans. MSMEs, meanwhile, can be more vulnerable to shocks, especially in a jittery economic climate.
Technology Is the New Recovery Agent
To make this shift work, ARCs need more than strategy—they need systems. Technology is becoming the backbone of this transformation.
Data analytics and machine learning are now must-haves. ARCs are using them to sort, score, and predict recovery on small-ticket loans. And digital payment platforms? They’re making collections cheaper and faster. Every rupee saved on logistics is a rupee earned in margins.
Two tools are especially shaping this transformation:
| Technology Tool | How It Helps ARC Operations |
|---|---|
| AI-powered analytics | Predicts repayment behavior, flags risky loans |
| Digital payment apps | Speeds up collections, cuts field costs |
But here’s a twist: not every ARC is tech-ready. Smaller players are struggling to invest in automation, and legacy systems are slowing some of them down. There’s a risk of a digital divide in the sector itself.
One Foot in the Past, One Eye on the Future
It’s not like corporate assets are going away. They’re still the juicy, high-yield part of the portfolio. When a company like a textile mill or logistics park comes out of insolvency, it brings in a windfall. You can’t ignore that.
But these windfalls are rare. One big recovery every two years doesn’t keep the lights on. Liquidity is key.
ARCs that blend both—big corporate deals and small, steady recoveries—could have the best of both worlds. They can ride the slow churn of the court-led insolvency pipeline while their retail arms quietly generate monthly income.
Challenges Ahead—And They’re Not Small
Let’s be honest. Shifting from corporate to consumer isn’t just a strategy flip. It’s a culture shift. The way you chase a ₹500 crore loan is not the same as collecting ₹50,000 from a kirana store owner.
There’s a learning curve:
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Retail requires a customer-centric mindset
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MSMEs demand personalized engagement
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Legal processes are less formalized, more human-driven
ARCs now need field agents trained in empathy, not just enforcement. They need call centers with multilingual reps, not just legal teams armed with Insolvency and Bankruptcy Code files.
And then there’s scale. Managing tens of thousands of small loans means building huge backend support systems—fast.
But if ARCs can crack this model? They’ll become less reliant on unpredictable court processes and more like agile, tech-driven recovery machines.
The New ARC Model Might Just Be What the Market Needs
India’s financial ecosystem is in flux. NPAs haven’t vanished, but they’ve changed shape. Retail stress is rising post-pandemic. MSMEs, although resilient, are struggling with credit access and inflation shocks.
By adapting to these segments, they’re not just chasing profit. They’re becoming part of the solution. Cleaning up credit messes, one EMI at a time. And in doing so, they’re rewriting their own future.
This hybrid model—corporate deals for spikes, MSME and retail for flow—might just be the most sustainable version of the ARC industry yet.
