Indian Overseas Bank puts MSME bad-loan portfolio on the block for ARCs

Indian Overseas Bank (IOB) has invited bids from asset reconstruction companies (ARCs) and other permitted buyers for a portfolio of non-performing MSME loans. Each account in the portfolio has a book outstanding of between Rs 1 crore and Rs 10 crore. Connected accounts of the same borrowers are included.

The Chennai-based public sector lender is offering the loans pan-India as “Lot 4” for the October-December quarter of FY27. The sale will be an e-auction under the open auction method, on an “as is where is, as is what is, whatever there is” and “without recourse” basis. The bank’s Stressed Assets Management Department published the notice on Saturday.

Interested bidders must send an expression of interest to the bank by November 20. The e-auction is on November 25. The advertisement does not give the number of accounts, the total outstanding or the reserve price. The bank says these details are in a notification dated November 13 on its website. It has reserved the right to change or cancel the process without further advertisement.

This is IOB’s second ARC sale notice this quarter. Under a “Lot 2 during Q3 of FY 2026-27” notification dated October 28, 2026, the bank offered eight stressed loan accounts to ARCs and other permitted transferees, including Indian Technomac Co Ltd. That lot had principal outstanding of ₹470.38 crore as of September 30, 2026, and a combined reserve price of ₹318.55 crore, about 68% of principal.

MSME loans are the weakest part of IOB’s domestic book. At the end of September, MSME had the highest NPA ratio in the domestic book, at 2.14% (₹1,179 crore). Bank-wide, the gross NPA ratio fell to 1.19% in Q2 FY27, from 1.83% in Q1 FY27 and 1.42% in Q2 FY26.

So far, IOB has relied far more on write-offs than on ARC sales to cut its bad loans. Over the five quarters to September 2026, ARC sales came to ₹156 crore, about 6% of the ₹2,622 crore reduction in gross NPAs, while write-offs totalled ₹1,315 crore. There were no ARC sales in the June quarter.

The sale will be governed by the RBI’s Master Directions on Transfer and Distribution of Credit Risk, 2025 (Part A – Transfer of Loan Exposures), dated 28 November 2025.

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