Banks Slash Bad Loans: ₹6,700 Crore Sold in Q3! Is This a Turning Point for Your Portfolio?

Indian financial institutions have intensified their efforts to clean up their balance sheets by selling off stressed assets. During the September quarter, banks and non-bank lenders sold bad loans worth a total of ₹6,721 crore, a substantial increase from ₹4,388 crore in the June quarter. This surge was driven by a near doubling of retail bad loan sales, which reached ₹3,118 crore, up from ₹1,703 crore in the previous quarter. Corporate non-performing loan sales also saw a significant rise of about 34%, amounting to ₹3,603 crore compared to ₹2,685 crore.

This aggressive offloading indicates a clear intent by lenders to present cleaner balance sheets to investors and shift focus towards new credit growth, rather than expending resources on loans with low recovery prospects. Industry experts anticipate this trend of higher bad loan sales to continue through the December and March quarters.

The composition of stressed assets is also mirroring the broader shift in credit dynamics, moving from corporate and industrial loans towards retail lending. Over the past decade, personal loans have seen a dramatic surge of 398%, while industrial credit grew by 48%. This change is prompting asset reconstruction companies (ARCs) to reassess their strategies and infrastructure to align with the growing retail distressed asset market. The ARC sector has seen its assets under management (AUM) turn positive in September 2025 after periods of negative growth.

Impact This news is highly positive for the Indian banking sector. Improved asset quality enhances financial stability, boosts investor confidence, and can lead to better valuations for banks and NBFCs. It signals a healthier financial system, which is crucial for overall economic growth. Rating: 9/10

Difficult Terms Bad Loans: Loans that are unlikely to be repaid by the borrower and are considered a loss for the lender. Asset Reconstruction Companies (ARCs): Financial institutions that buy bad loans from banks, often at a discount, to manage and recover the dues. Non-performing Corporate Loans: Loans given to companies that have failed to make interest or principal payments for a specified period. Credit Growth: The increase in the total amount of credit (loans) extended by financial institutions to individuals and businesses. Retail Lending: Loans provided to individual consumers, such as home loans, personal loans, and credit card debt.