A charge-off is not the end of a loan's financial life — it is the point at which the institution stops expecting collection through its own channels and turns recovery responsibility over to the post-charge-off ecosystem: Asset Reconstruction Companies, portfolio buyers, debt collection agencies operating under assignment agreements, and in some cases, reinstatement through the borrower's own later ability to pay. The choice of ARC — which one, on what terms, for which portfolio segments — determines how much of that charged-off balance the institution ultimately recovers. The Post Charge-Off Recovery AI evaluates every empanelled and prospective ARC on seven criteria and recommends the optimal assignment for each portfolio batch.
Why ARC selection matters more than most institutions realise
The difference between a well-matched ARC and a poorly matched one for a given portfolio can be 8 to 14 percentage points of recovery rate on the charged-off book value. An ARC that specialises in secured MSME debt in Karnataka, with a field team experienced in agricultural equipment hypothecation and strong relationships with local sub-registrars, will recover significantly more from a portfolio of distressed Karnataka MSME loans than an ARC whose expertise is unsecured personal loans in metropolitan cities. The portfolio match is not a preference — it is the primary driver of recovery yield.
Most institutions empanel ARCs through a periodic tender process — issuing an RFP, evaluating bids, empanelling three to five ARCs for a one-year term, and then assigning portfolios to whichever ARC has the lowest current load. The Post Charge-Off Recovery AI replaces this with a continuous evaluation framework: seven criteria, updated monthly as each ARC's performance data comes in, producing a dynamic ranking that reflects current capability rather than capability at the time of the last tender.
The 7 ARC evaluation criteria
| Criterion | Weight | What Is Measured | Data Source |
|---|---|---|---|
| Historical recovery rate — matched portfolio type | 30% | Actual cash recovery as % of assigned book value for portfolios of the same type (secured MSME, unsecured personal, LAP, etc.) in the same geography, over the last 24 months. | Performance data from the institution's own prior assignments + RBI CRILC data where available + ARC self-disclosure |
| RBI registration and regulatory standing | 20% | Active RBI Certificate of Registration as a Securitisation Company / Reconstruction Company under SARFAESI Section 3. No RBI enforcement actions or show-cause notices in the last 3 years. CRAR above 15%. | RBI CRILC registry + ARC's most recent quarterly compliance report |
| Geographic and segment specialisation match | 20% | Proportion of the ARC's active portfolio that matches the institution's proposed assignment — by geography (Karnataka, Tamil Nadu), product type (MSME, home loan, personal loan), and borrower profile (salaried, SE proprietor, agri). | ARC's portfolio disclosure + field team geography mapping |
| Net asset value and financial capacity | 15% | ARC's net owned funds relative to the proposed assignment value. An ARC that cannot financially absorb the assignment value (even on deferred consideration terms) creates completion risk. Minimum NOF for any assignment: 15% of assignment face value. | ARC's audited balance sheet + latest CRAR report |
| Legal and recovery track record | 10% | ARC's track record in SARFAESI enforcement, DRT proceedings, and NCLT insolvency proceedings — specifically its ability to convert legal process into cash recovery within 24 months of assignment. Proportion of assigned accounts resolved (any outcome) vs lingering. | ARC self-disclosure + court records + IBBI proceedings data |
| Technology and data management capability | 3% | ARC's ability to receive portfolio data in structured format, provide monthly recovery reporting in the institution's required format, and integrate with the institution's Recovery AI data feed for real-time tracking. Manual-only ARCs create reconciliation complexity. | Technical assessment + integration test |
| Conduct and FPC compliance record | 2% | Complaints filed against the ARC with the RBI, consumer forums, or the institution's own grievance system. Any ARC with more than 3 upheld FPC complaints in the last 12 months is excluded regardless of financial score. | Grievance AI database + RBI complaint registry + consumer forum records |
The ARC evaluation scorecard: three ARCs for a Karnataka MSME portfolio
The assignment structure: what the Recovery AI recommends alongside the ARC
The ARC recommendation includes not just which ARC but what assignment structure. The institution has three assignment options: outright sale (institution sells the portfolio to the ARC for an upfront cash consideration — certain recovery, lower yield); Security Receipts (SR) structure (ARC issues SRs representing a share of future recoveries — the institution holds the SRs and recovers as and when the ARC collects — variable yield, potentially higher); or hybrid (a partial upfront consideration plus SR issuance for the balance). The Post Charge-Off Recovery AI models the expected recovery yield under each structure for this specific portfolio, based on the ARC's historical performance curve and the portfolio's account characteristics, and recommends the structure that maximises the institution's expected recovery in net present value terms.
For the Karnataka MSME batch, the Recovery AI recommends the SR structure with ARC-Alpha: an SR issuance at 18% of book value (₹8.7 crore face value of SRs), with an expected recovery of 28–32% of book value (₹13.5–15.5 crore) over 36 months. This is compared against the outright sale alternative — ARC-Beta offered an outright purchase at 12% of book (₹5.8 crore cash) — and the SR structure with ARC-Alpha is projected to return ₹7.9 crore more in NPV terms, primarily because of ARC-Alpha's superior performance record with matched portfolios.
The ARC whose bid was best eighteen months ago is not necessarily the ARC whose performance is best today
ARC performance changes. A specialist team leaves. A geography-specific regulatory change affects enforcement timelines. A competitor ARC acquires a portfolio that competes with the institution's accounts for the same field recovery resources. The institution that locked its empanelment panel at the last tender and has not updated its performance data since then may be assigning its best portfolios to an ARC whose capability has materially deteriorated since it won the bid. The Post Charge-Off Recovery AI evaluates ARC performance monthly against actual recovery data — not against the credentials submitted in an RFP response — and updates the assignment recommendation for each portfolio batch accordingly.