India has 28 asset reconstruction companies (ARCs), a lot too many to accommodate as they need to be adequately capitalised. The stage is set for consolidation in the sector amid revised regulatory guidelines.

Small ARCs may find it challenging to bring in additional capital to meet the higher minimum net-owned fund requirement, which has gone up three times to Rs 300 crore in the revised Reserve Bank of India (RBI) guidelines. This may eventually lead to consolidation in the industry, the Associated Chambers of Commerce and Industry of India and Crisil Ratings said in a report.

Even with 28 ARCs in business, there is a concentration with 70% of the total AUM being with five of them. Three ARCs control 54% of the total net on funds. 

The increased minimum net-worth requirement may see some players give up their licences and there could also be some consolidation, allowing the remaining players to corner a larger share of the industry pie.

“Over time, this will lead to consolidation in the industry, which may lead to monopoly of a few ARCs. Big Players will remain in the market,” the report said.