Balance Sheet Boost: ₹8,500 Cr bad loans sold by Bandhan and ESAF SFB

Synopsis: Bandhan Bank and ESAF Small Finance Bank sold ₹8,566 crore of NPAs and written-off loans to ARCs, with Bandhan ₹6,872 crore and ESAF at ₹1,694 crore, raising ₹1,085 crore in consideration to reduce stress, clean balance sheets, and improve capital efficiency.

Bandhan Bank and ESAF Small Finance Bank have announced the sale of their non-performing and written-off loan portfolios to Asset Reconstruction Companies (ARCs). This strategic move is aimed at cleaning their balance sheets, reducing stressed assets, and improving capital efficiency, while allowing the banks to focus on performing loans and business growth.

With a market capitalisation of Rs. 23,423 cr, the shares of Bandhan Bank Ltd are currently trading at Rs. 145.40 per share, down from its previous close of Rs. 146.10 per share.

With a market capitalisation of Rs. 1,356 cr, the shares of ESAF Small Finance Bank are currently trading at Rs. 26.32 per share, up from its previous close of Rs. 26.01 per share.

What’s the News

Bandhan Bank Limited informs about material events that may affect its financials or operations. The material event is the sale of certain non-performing and written-off loan portfolios to Asset Reconstruction Companies (ARCs).

These portfolios were part of the Bank’s Emerging Entrepreneurs Business (EEB) and Aspiring Business Group (ABG), which include Group Loans, Small Business & Agri Loans. The sale was executed through a bidding process involving ARCs or other permitted transferees.

Sale of NPA Portfolio to ARCIL

The first portfolio consists of unsecured NPAs with more than 180 days past due, with a principal outstanding of Rs. 3,165.25 crore as of November 30, 2025. These NPAs were sold to Asset Reconstruction Companies (India) Limited (ARCIL) for a consideration of Rs. 569.75 crore on a Security Receipts (SR) basis.

A Security Receipt is a financial instrument issued by ARCs when they acquire NPAs. Investors (like the Bank itself or other entities) subscribe to these SRs, which entitle them to future recovery from the underlying loan portfolio. In this case, ARCIL subscribed to 53.25% of SRs (Rs. 303.39 crore), while Bandhan Bank subscribed to 46.75% of SRs (Rs. 266.36 crore). The sale was conducted using the Swiss Challenge Method, a process where an initial bid is challenged by other participants to get the best possible price.

The second portfolio includes unsecured written-off loans, with a principal outstanding of Rs. 3,707.11 crore as of November 30, 2025. These were sold to Phoenix ARC Private Limited for Rs. 331.97 crore on an SR basis.

Phoenix emerged as the highest bidder through an auction process. In this transaction, Phoenix subscribed to 37.84% of SRs (Rs. 125.60 crore), while Bandhan Bank retained 62.16% of SRs (Rs. 206.37 crore). This structure allows the Bank to remain partially invested in the recovered value of these loans, potentially benefiting from future recoveries beyond the initial sale consideration.

ESAF Small Finance Bank’s Sale

Also, ESAF Small Finance Bank informed about the sale of its NPA and technically written-off loan portfolio to Asset Reconstruction Companies (ARCs). The Board had approved this sale earlier, and the transaction was completed on December 29, 2025, using the Swiss Challenge Method. The portfolio had an outstanding principal of Rs. 1,693.65 crore (as of September 30, 2025) and was transferred for an aggregate consideration of Rs. 183.18 crore.

Both ESAF Small Finance Bank and Bandhan Bank have undertaken the sale of their NPA and written-off loan portfolios to Asset Reconstruction Companies (ARCs) as a strategic step to clean their balance sheets, reduce stressed assets, and improve capital efficiency. 

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