Activity of India’s Asset Management Company (NARCL) and the NPL Sector: Current Overview
1. Overview of India’s NPL (GNPA) Dynamics
GNPA (Gross Non-Performing Assets) Trend
In recent years, the GNPA level of India’s banking system has declined significantly.
According to estimates, GNPA decreased from approximately 9.1% in 2019 to 2.8% by the end of FY2024, and further to 2.6% in 2025. This reflects a substantial improvement in banks’ asset quality, driven by active write-offs, recoveries, and transfers of distressed assets.
Key reasons for this decline:
- Reduction in new problem loans;
- Increased write-offs and restructurings;
- More active recovery processes and participation of the “bad bank” (NARCL);
- Macroeconomic recovery enabling borrowers to better service their debts.
GNPA Dynamics
Year | GNPA (%) |
2019 | 9.1 |
2020 | 8.2 |
2021 | 7.3 |
2022 | 5.9 |
2023 | 4.5 |
2024 | 2.8 |
2025* | 2.6 |
* 2025 — estimated value based on public statements and reports.
2. Key Drivers of NPL Reduction
- IBC reform (Insolvency and Bankruptcy Code): introduction of pre-pack mechanisms, accelerated insolvency procedures, and improved efficiency of corporate default resolution.
- Recovery mechanisms (SARFAESI / DRT): more active collateral enforcement, faster procedures, and electronic auctions.
- Role of ARCs: asset reconstruction companies have become more active in acquiring large NPLs and restructuring or selling them.
- State “bad bank” (NARCL): significantly strengthened banks’ capacity to offload distressed loans.
3. Key Regulatory and Institutional Developments
3.1 NARCL – the Core “Bad Bank” Institution
- Establishment: National Asset Reconstruction Company Ltd (NARCL) was established by the Government of India and registered as an ARC.
- Objective: aggregation of large stressed loans (typically ≥ USD 57.5 million) from the banking system and facilitation of their resolution.
- Payment structure: approximately 15% cash and 85% via Security Receipts (SRs) when acquiring distressed assets from banks.
- Government guarantee: SRs issued to banks are backed by a government guarantee for about 5 years, mitigating transfer risks.
- Portfolio: as of early 2025, NARCL has acquired stressed assets totaling around USD 12.1 billion, covering approximately 28 accounts.
- Targets: acquisition of up to USD 23 billion in distressed assets by FY2026.
- Resolution mechanism: NARCL works with IDRCL (India Debt Resolution Company Ltd), which is responsible for asset resolution strategies (restructuring, sale, liquidation, IBC proceedings).
- Transaction results: NARCL closed transactions totaling approximately USD 2.76 billion in FY2024.
4. Sectoral Structure of NPLs (Estimated)
Sector | Estimated NPL Share | Expected Recovery Rate |
Infrastructure | 7–12% | ~35–55% |
Construction | 6–10% | ~30–50% |
Manufacturing | 3–6% | ~40–65% |
Steel & Metals | 5–9% | ~35–60% |
MSMEs | 8–12% | ~25–45% |
(Estimates based on ARC industry reviews, public statements by NARCL, and analytical reports.)
5. Risks and Key Challenges
- Collateral realization risk: assets transferred to NARCL may face revaluation or liquidation challenges, particularly complex infrastructure or industrial collateral.
- Resolution timelines: large accounts may remain unresolved for extended periods, especially under IBC processes, delaying cash recoveries.
- Guarantee exposure: government guarantees on SRs may be triggered if recoveries underperform expectations, posing fiscal risks.
- Competition with private ARCs: NARCL competes with private ARCs for large asset pools.
- Valuation risk: inaccurate asset valuation may result in overpricing and potential losses.
6. Opportunities for Investors
- Partnerships with NARCL: investors may collaborate in selling restructured assets or act as buyers after asset aggregation.
- Investments in SR portfolios: SRs may offer attractive returns with proper risk assessment and effective collateral realization.
- Engagement with IDRCL: joint restructuring projects, especially in infrastructure and energy sectors, can generate value.
- Collaboration with ARCs: combining ARC expertise with NARCL’s scale to build workout platforms and secondary asset sales.
