Bandhan Bank has completed a major asset restructuring transaction by selling ₹3,212 crore worth of bad microfinance loans to Asset Reconstruction Company (India) Limited (ARCIL). This significant transaction marks an important step in the bank's ongoing efforts to manage its asset quality and strengthen its balance sheet.

Transaction Details

The sale involves non-performing microfinance loans valued at ₹3,212 crore that have been transferred to ARCIL. This transaction allows Bandhan Bank to remove these stressed assets from its books and focus on its core banking operations.

Strategic Impact

The disposal of these non-performing assets represents a strategic move by Bandhan Bank to clean up its loan portfolio. By transferring these bad loans to ARCIL, the bank can reduce its non-performing asset ratio and improve its overall asset quality metrics.

This transaction is particularly significant given Bandhan Bank's focus on microfinance and financial inclusion. The sale allows the bank to maintain its commitment to serving underbanked segments while managing the inherent risks associated with microfinance lending.

Asset Reconstruction Process

ARCIL, as the acquiring entity, specializes in the reconstruction and recovery of stressed assets. The company will now handle the recovery process for these microfinance loans, utilizing its expertise in asset reconstruction and recovery mechanisms.

The transaction enables Bandhan Bank to realize value from these stressed assets while transferring the recovery responsibility to a specialized asset reconstruction company. This approach allows the bank to focus its resources on new business generation and customer service rather than prolonged recovery efforts.

This sale of bad microfinance loans is part of Bandhan Bank's asset quality management strategy, demonstrating the bank's proactive approach to addressing non-performing assets and maintaining a healthy balance sheet.

Bandhan Bank has successfully concluded the sale of substantial unsecured non-performing asset (NPA) and written-off loan portfolios to Asset Reconstruction Companies (ARCs), marking a significant milestone in the bank's asset quality management strategy. The transactions, approved by the board of directors, involved two separate portfolio sales totaling ₹6,872.36 crore in outstanding principal.

ARCIL Transaction Details

The first major transaction involved the sale of an unsecured NPA portfolio to Asset Reconstruction Companies (India) Ltd (ARCIL) through the Swiss Challenge Method. ARCIL emerged as the winning bidder for this severely distressed portfolio.

Phoenix ARC Transaction

In a separate transaction, Bandhan Bank sold an unsecured written-off loan portfolio to Phoenix ARC Private Ltd through an auction process. Phoenix emerged as the highest bidder for this portfolio comprising loans from the Emerging Entrepreneurs Business (EEB) and Aspiring Business Group (ABG) segments.

Transaction Structure and Process

Both transactions were executed on a security receipts (SR) basis, with the bank retaining significant stakes in the portfolios. The board had previously approved the sale of identified NPAs and written-off portfolios belonging to the Emerging Entrepreneurs Business (EEB), including group loans and small business and agri loans, and the Aspiring Business Group (ABG) segments.

The Swiss Challenge Method used for the ARCIL transaction allowed for competitive bidding, while Phoenix ARC secured the second portfolio through a standard auction process. These structured approaches ensured competitive pricing for the distressed assets.

Market Performance

Shares of Bandhan Bank ended at ₹145.85, up by ₹0.97, or 0.67%, reflecting positive market sentiment following the announcement of these strategic asset sales. The transactions are expected to help improve the bank's asset quality metrics and strengthen its balance sheet position.