Assets Under Management (AUM) of Asset Reconstruction Companies (ARCs) is expected to grow almost 10 per cent this fiscal to ₹1,19,000 crore after a period of relative stagnation, according to a Assocham-Crisil Ratings report.
ARCs have been facing headwinds in the past three fiscals, with growth in AUM, as measured by security receipts (SRs) outstanding, dropping to low single digits in the past 4 years.
This is in sharp contrast to previous years — between fiscals 2014 and 2018, AUM had grown at a steady pace (from ₹42,000 crore to ₹95,000 crore), initially driven by the supportive regulatory environment for banks to sell bad assets, the report said.
The slowdown is partly attributable to the subdued macroeconomic environment, which had hindered consummation of deals and heightened risk aversion among investors, leading to lower acquisition. A few structural trends are also at play.
Small asset reconstruction companies (ARCs) may find it challenging to bring in additional capital to meet the higher minimum net owned fund (NOF) requirement, which has gone up three times to ₹300 crore,eventually leading to consolidation in the industry, according to the report.
“Over time, this will lead to consolidation in the industry, which may lead to monopoly of a few ARCs. Big Players will remain in the market,” the report said.