RBI keeps watchful eye on sale of bad loans to ARCs

Are banks selling non-performing assets (NPAs) at undervalued prices? Are Asset Reconstruction Companies (ARCs) making large profits from these distressed loans? And is there a possibility of behind-the-scenes coordination between banks, ARCs, and borrowers? These are the concerns now drawing the attention of the Reserve Bank of India (RBI), which is keeping a close watch on high-value NPA transactions.

Questions around loan sale deals

Sources indicate that the RBI is observing how banks are selling bad loans to ARCs—especially in cases involving large sums of money.

There have been instances where ARCs have gone on to recover significantly more than what they paid for the loans, raising concerns about the fairness of such transactions.

Is there a lack of recovery effort?

The RBI is also concerned about whether banks are genuinely using their full power and muscle before opting to sell these loans.

The worry is that banks may not be exhausting all recovery options, choosing instead to offload NPAs at lower valuations.

Concerns of inside advantage

Another issue under the lens is the possibility of informal understanding or collusion between stakeholders—banks, borrowers, and ARCs—that may be influencing how and at what price loans are being sold and recovered.

RBI’s current approach

While the RBI has not announced any new regulations or formal investigation, it is actively tracking how much banks are recovering versus how much ARCs are ultimately able to extract from the same loans.

The central bank’s aim appears to be to ensure that the resolution process remains transparent, fair, and in line with the broader health of the financial system.