Collection-as-a-Service Emerges as Strategic Tool for ARCs and Lenders in Stressed Asset Recovery

Industry experts indicate that Collection-as-a-Service (CaaS) is becoming a mutually beneficial model for banks, NBFCs, and Asset Reconstruction Companies (ARCs) to handle stressed loans. The approach allows lenders to redirect resources toward core lending operations while providing ARCs with fee-based service opportunities.

Collection-as-a-Service (CaaS) is gaining traction as a collaborative model between Asset Reconstruction Companies (ARCs) and financial lenders to address stressed loans within the financial system. According to industry stakeholders, this strategy assists banks with loan recovery while opening a fee-based service revenue stream for ARCs.

Through the CaaS model, ARCs gain firsthand insight into the recoverability of assigned assets. This visibility can subsequently encourage them to make acquisition offers to lenders down the line. Additionally, the arrangement enables banks and non-banking financial companies (NBFCs) to direct their internal resources toward generating new business rather than getting bogged down in drawn-out recovery processes.

Phanindranath Kakarla, Managing Director and Chief Executive Officer of Asset Reconstruction Company (India) Ltd (ARCIL), noted that scaling CaaS offerings for banks is a strategic priority for the firm. In its investor presentation, ARCIL outlined plans to offer collection services for retail loans to banks, collecting outstanding amounts from borrowers on their behalf. The company highlighted its established infrastructure, which combines in-house collection managers, legal officers, and external collection agencies spanning 24 states across India to manage secured and unsecured asset pools.

Hari Hara Mishra, CEO of the Association of ARCs in India, elaborated on the dual advantages ARCs hold as servicers. First, ARCs are well-capitalized compared to smaller servicing agencies and operate under strict governance frameworks regulated by the Reserve Bank of India (RBI), ensuring compliance with data privacy and fair practice codes. Second, their primary role as debt acquirers allows them to understand accounts thoroughly. This understanding can facilitate future exit opportunities for selling financial institutions and help bridge price expectation mismatches by mitigating information asymmetry.

The concept of utilizing ARCs for specialized recovery is not entirely new. During the 2014-15 period, when corporate loan stress was escalating, the Department of Financial Services advised public sector banks to engage ARCs as agents to recover dues on doubtful and loss assets, covering both secured and unsecured hard-core non-performing assets (NPAs). This initiative supplemented internal recovery efforts using specialized entities.

Currently, there are 27 ARCs operating in India. Industry observers note that active collaboration with these NPA specialists can strengthen the resolution infrastructure of financial institutions. By outsourcing recovery tasks to entities that have already invested in specialized technology and operational know-how, financial institutions can refocus on core lending activities, while ARCs can improve their return on investment through supplementary fee income.

"The adoption of Collection-as-a-Service highlights a practical shift in how financial institutions manage stressed assets. By partnering with regulated ARCs for recovery, banks and NBFCs can free up valuable operational resources and focus entirely on their core lending business. For ARCs, this creates a steady, fee-based income stream while giving them deeper insights into asset quality, which can streamline future buyouts and resolutions." — Dr. Shishir Gupta, Founder & CEO, StartupLanes