Navigating through volatility in the ARC arena

The after-effects of COVID-19 are increasingly seen today, in the form of job losses, economic slowdown, and rising Non-Performing Assets. Financial institutions primarily involved in money lending functions are currently facing the heat of bad loans as the risks involved are becoming higher with the expanding customer base and the growing pool of retail funds.

As a result, for every quarter a financial institution presents its balance sheets, the headache of non-performing assets negatively impacts its share prices. To keep the business moving, the financial institution has to cut losses and clean up the balance sheets for economic viability.

In the past couple of years, the trend of purchasing pools of funds has gained immense traction. Small bad loans as a group of 1000s of crores are now sold to ARCS for this purpose. This is because NPAs not only block the capital of financial institutes but lead to stagnation in their growth. Neither can a financial institution generate revenue from the NPA, nor is it economically feasible to take legal action against defaulters. Also, with the looming recession threat, the trend of selling NPAs to Asset Reconstruction Companies has further increased.

ARCs before the pandemic mainly focused on large corporate loans. Covid19 forced many small-time borrowers, small businesses, and individuals to borrow money from banks and NBFCs, further burdening these financial institutions with huge NPAs. Consequently, ARCs are now purchasing a pool of funds (read-bad loans) from financial institutes to make up for due diligence and loan transfer costs.

Earlier, an asset to the tune of Rs. 10,000 crores were simple to maintain for an ARC on a spreadsheet as it usually comprised over 15-20 bad loans. But as the ARCs are now purchasing pools of loans worth 10000 crores, maintaining the same data, interest calculation, and formulating resolution strategies become complex and tedious jobs. For instance, ARCs eventually end up with ten to twenty thousand loans by purchasing such portfolios. Thus, maintaining these twenty thousand bad loans on a spreadsheet is nearly impossible.

That’s where a need for a system for ARCs has now sprung up as shifting between large loan portfolios and retail portfolios have different requirements since both are different segments altogether. By simply incorporating minimal changes in the existing processes and systems, ARCs cannot meet the varied requirements that are a part of managing these retail portfolios.

Because Asset Reconstruction Companies are absorbing retail loans in their portfolios, they need systems that allow them to scale without the need for significant customizations.

Finnate is a unique platform that supports the above-mentioned segments without additional customisations. From covering the entire loan management cycle to payment tracking, monitoring risks, and reconstruction, Finnate’s product-Investfact offers a gamut of features to cater to ARC needs.


Prakash Somaiya
Director, Business Head India & MEA

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