Due Diligence in NPA Acquisitions

Why Due Diligence is a Game-Changer for ARCs in NPA Acquisitions


For Asset Reconstruction Companies (ARCs), buying Non-Performing Assets (NPAs) from banks and NBFCs may seem like an easy way to profit, but without proper due diligence, it can quickly turn into a financial disaster.


Key Reasons Why Due Diligence Matters:


✅ Fair Valuation: NPAs are often overpriced; ARCs must ensure they pay for real recovery potential, not inflated figures.

✅ Legal & Compliance Risks: Many NPAs come with disputes, missing documents, or regulatory hurdles—overlooking these can lead to costly delays or total loss.

✅ Borrower & Asset Quality Check: Not all defaulters are the same. Some may settle, while others use legal tactics to avoid payment. Knowing the difference is crucial.

✅ Collateral Verification: Assets backing the loans may be encumbered, disputed, or overvalued. A deep check on security is essential for real recoveries.

✅ Repayment Potential: If the borrower’s business is beyond revival, the NPA may be unsalvageable. Smart ARCs assess future cash flow before investing.


Smart Buying, Not Just Bulk Buying


🔹 Not all NPAs are worth acquiring—distress doesn’t always mean recoverable.

🔹 Overpaying for bad loans without proper assessment leads to losses, not profits.

🔹 Strong due diligence protects ARCs from legal and financial pitfalls, ensuring higher recovery rates and sustainable returns.


In NPA acquisitions, success lies in strategic selection, not just aggressive buying.

This blog is authored by Company Secretary Ronak Gupta. He is author of many blogs and runs many websites and youtube channels. His work is dedicated to corporate laws, legal, secretarial, professional services and also in strategy formulations for corporates. Mail him at: csronakgupta23@gmail.com or call at :9910226715

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