Bandhan Bank has moved to sell a large chunk of its stressed micro-finance (MFI) and unsecured retail loans worth nearly ₹7,000 crore to external buyers. The sale has attracted strong interest from several Asset Reconstruction Companies (ARCs), making it one of the largest retail bad-loan sales by a private bank in recent years. This guide will help Indian readers understand this development clearly and what it means for borrowers, investors and the banking system.
Last Updated: 02 December 2025
Quick Highlights
- Topic summary: Bandhan Bank is selling around ₹7,000 crore of stressed MFI and unsecured retail loans, drawing strong demand from ARCs.
- Target audience: Bank customers, equity investors, finance students, and anyone tracking NPAs and stressed-asset deals in India.
- Key benefits: Potential improvement in asset quality, lower NPAs for the bank, better capital usage, and professionalised recovery.
- Important reminders: ARCs usually buy at a discount; recovery is uncertain; borrowers may face changed recovery approaches after the sale.
What Is This Topic About?
Like many lenders with a strong micro-finance franchise, Bandhan Bank has faced stress in its Emerging Entrepreneurs Business (EEB) and Aspiring Business Group (ABG) portfolios. These segments include small-ticket group loans, micro and small business loans and agri loans.
To clean up its balance sheet, the bank’s board has approved the sale of identified non-performing assets (NPAs) and written-off loans totalling about ₹6,931 crore (nearly ₹7,000 crore) through a bidding and auction process involving ARCs and other eligible bidders.
How Does the Sale Work?
The proposed sale is being carried out through a structured process, largely following the Swiss Challenge method and auction route:
- For NPAs overdue by more than 180 days, with principal outstanding of about ₹3,212.17 crore, Bandhan Bank plans to invite bids under the Swiss Challenge method.
- For written-off loan portfolios with principal outstanding of about ₹3,719.14 crore, the bank plans to use an auction route.
- Interested ARCs and other eligible buyers place bids; once a lead bid is selected, others may challenge it by offering better terms under the Swiss Challenge framework.
- The winning ARC then acquires the pool of loans (usually at a discount) and takes over the recovery responsibility.
Once the transaction closes, these loans move off the bank’s books, helping improve reported asset quality and lowering future provisioning burden.
Important Features of the Bandhan Bank Portfolio Sale
| Parameter | Details (Approx.) |
|---|---|
| Total Portfolio Size | ₹6,931 crore (commonly described as “₹7,000 crore”) |
| NPA Pool (>180 days past due) | ₹3,212.17 crore principal outstanding |
| Written-off Loan Pool | ₹3,719.14 crore principal outstanding |
| Segments Covered | EEB and ABG – micro-finance, group loans, small business and agri loans |
| Sale Mechanism | Swiss Challenge bidding for NPAs + auction for written-off pool |
| Potential Buyers | Asset Reconstruction Companies (ARCs) and other eligible investors |
| Objective | Clean up balance sheet, reduce NPAs and strengthen asset quality |
Benefits of This Stressed-Asset Sale
- Cleaner balance sheet: Moving out bad loans reduces the share of NPAs and written-off assets, improving reported asset quality ratios.
- Lower future provisions: Once the sale is completed, the bank’s need to set aside fresh provisions on these portfolios can reduce.
- Management focus: The bank can focus more on fresh, performing business (including secured lending) instead of chasing older bad loans.
- Specialised recovery: ARCs are specialised in distressed-asset recovery and restructuring, which may lead to better recovery outcomes over time.
- Investor confidence: A credible clean-up effort can send a positive signal to equity investors, rating agencies and regulators.
Drawbacks / Risks and Key Concerns
- Sale at discount: ARCs typically buy bad loans at a steep discount to face value, which means the bank realises only a fraction of the principal outstanding.
- Uncertain recovery for ARCs: Even with a discount, there is no guarantee that ARCs will be able to recover enough to make attractive returns.
- Borrower impact: Borrowers whose loans are sold may see a change in recovery approach or negotiation style once an ARC takes over.
- One-time clean-up, not a permanent fix: Asset sale helps current ratios, but long-term improvement still depends on better underwriting, collections and risk management.
- Market perception: While a sale can be seen as positive clean-up, it also highlights the level of stress in the bank’s micro-finance book.
Impact on Borrowers and Retail Investors
For Borrowers
- Your lender may change from Bandhan Bank to an ARC or another institution after the sale.
- Loan terms usually remain legally binding, but repayment discussions and settlement options may now be handled by the ARC.
- It is important to respond to official communication and keep records of all payments and notices.
For Equity Investors
- The sale is generally seen as part of a broader shift by Bandhan Bank towards more secured lending and better asset quality.
- In the short term, there may be accounting effects (such as impact on profit depending on sale value vs book value).
- Over the medium term, if fresh slippages are controlled, the clean-up can support improved return ratios and market perception.
Tips & Best Practices for Retail Investors Tracking This News
- Do not look at the portfolio sale in isolation; also track the bank’s fresh slippages, credit-cost trends and mix shift from micro-finance to secured loans.
- Read quarterly results, management commentary and investor presentations to see whether stress is stabilising.
- Remember that stressed-asset sales are common in banking; what matters is whether the bank learns from the cycle and strengthens its risk framework.
- Avoid taking investment decisions purely on one headline; look at valuation, earnings visibility and your own risk tolerance.
- Consider speaking with a SEBI-registered investment adviser before making any large investment based on this event.
Frequently Asked Questions
1. Does this mean Bandhan Bank is in serious trouble?
Not necessarily. The sale reflects recognition of stress and an attempt to clean up the balance sheet. However, it does underline that earlier micro-finance and small-ticket portfolios had significant stress, which the bank is now addressing more aggressively.
2. Are Bandhan Bank customers affected if their loans are not part of this sale?
No. Regular, performing loan and deposit customers are unlikely to see any direct impact. The sale is focused on stressed and written-off portfolios.
3. Why are ARCs so interested in this portfolio?
ARCs see an opportunity to buy a large, diversified pool of stressed loans at a discount. If they can recover more than the purchase price plus costs, they can earn attractive returns.
4. Will Bandhan Bank recover the full ₹7,000 crore?
Very unlikely. Bad-loan portfolios are usually sold at a discount; the exact recovery depends on the winning bid and subsequent recoveries by ARCs.
5. Is this positive for Bandhan Bank’s share price?
Market reaction depends on multiple factors: sale valuation, timing, and investor expectations. A credible clean-up is often seen as positive, but there is no guarantee of any specific share-price move.
Important Links
Below are some important links where you can check official details, regulatory updates or learn more about stressed-asset sales.
| Link | Description |
|---|---|
| Bandhan Bank – Official Website | Click Here |
| Bandhan Bank – Investor Relations / Stock Exchange Filings | Click Here |
| Background on NPA & ARC Framework (RBI) | Click Here |
Conclusion
Bandhan Bank’s decision to sell around ₹7,000 crore of stressed MFI and unsecured retail loans to ARCs is a major step in cleaning up its balance sheet and reducing micro-finance risk. Strong interest from ARCs shows that there is a deep market for distressed assets in India, especially when deals are structured at the right price.
For investors and customers, the message is mixed but clear: the stress in certain portfolios is real, but the bank is taking active measures to address it. As always, careful tracking of asset-quality trends, business mix and risk controls will matter more than any single transaction.
Risk Disclaimer: This article is meant for general information and educational purposes only. It is not investment, tax or legal advice, nor a recommendation to buy, sell or hold any security. Please consult a SEBI-registered investment adviser or qualified professional before making investment decisions.
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