Banks Rush to Sell Bad Loans Before New RBI Norms

Indian state-owned lenders are actively selling off legacy bad loans to asset reconstruction companies (ARCs) as the April 2027 deadline for the Reserve Bank of India's (RBI) stricter expected credit loss (ECL) norms approaches. In the first quarter of fiscal year 2027, public sector banks offered nearly ₹60,000 crore of stressed assets for sale, with ₹50,000 crore originating from these institutions.

This accelerated sale is a strategic effort by banks to reduce their non-performing assets before the ECL framework mandates earlier recognition of loan losses and higher provisioning requirements. While details on the total value acquired by ARCs in Q1 FY27 are pending, the trend indicates a significant push to clear balance sheets. The process involves selling loans at a discount, often in exchange for cash or security receipts.

However, these large-scale sales have drawn judicial scrutiny. On July 19, 2026, the Supreme Court expressed serious concern regarding the assignment of loans from public sector banks to ARCs, highlighting the need to examine the conduct of ARCs and the overall mechanism for settling substantial loan liabilities for a fraction of their value. This scrutiny raises questions about transparency and potential issues in the recovery process for written-off accounts.