Asset Reconstruction Company (India) Ltd (ARCIL), backed by Avenue Capital and State Bank of India (SBI), has acquired Ujjivan Small Finance Bank’s (SFB) non-performing microfinance loan portfolio worth ₹365.5 crore for ₹34.26 crore.
Key Details of Acquisition
Acquisition translates to Recovery: of just 9.39%, resulting in over a 90% haircut for lender. A haircut refers to reduction in value of an asset when used as collateral or during a loan recovery. It represents difference between the asset’s market value and the amount a lender is willing to offer.
Acquisition was Initiated: with an anchor bid by ARCIL, triggering a Swiss Challenge auction, which is a competitive bidding process where an initial bid (the anchor bid) is submitted, and then other parties are invited to submit counter-bids. This process encourages competition and transparency by allowing challengers to improve upon the initial offer, ensuring the best value is obtained without launching a full-scale tender.
Counterbids to Offload NPA’s: Ujjivan SFB invited counterbids on a cash plus security receipts basis with a 5% markup over the anchor bid. The sale is part of Ujjivan SFB’s strategy to clean up its balance sheet by offloading non-performing assets (NPAs) and written-off loans.
Ujjivan SFB’s Financial Performance
- Total Loan Book: ₹30,466 crore (9.8% YoY growth).
- Secured Loan Book: 39.3% of the total as of December 2024 (previously 28.3% in Dec 2023).
- Net Profit (Q3 FY25): ₹108.6 crore, a 63.8% YoY decline (₹300 crore in Q3 FY24).
- Net Interest Income (NII): ₹886.7 crore, a 3.2% increase from ₹859.3 crore in Q3 FY24.
About Asset Reconstruction Company (India) Limited (ARCIL)
- India’s first and largest asset reconstruction company (ARC).
- Established in 2002 under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
- Sponsored by Major Banks: Including SBI, IDBI Bank, ICICI Bank, and Punjab National Bank (PNB).
- Has acquired over ₹70,000 crore worth of NPAs from the Indian banking system.
Significance of Deal
- Helps Ujjivan SFB reduce its NPAs, strengthening its financial health.
- Demonstrates ARCIL’s role in resolution of distressed assets in Indian banking system.
- Highlights the increasing focus of banks on cleaning up bad loans through asset reconstruction mechanisms.
- This acquisition underscores ARCIL’s leadership in managing NPAs and reflects the broader trend of Indian banks offloading bad loans to strengthen their balance sheets.