Shutting out foreign funds hurts India’s bad debt market: BofA

Says need for regulations providing direct access for foreign companies to bid without an intermediary.

Rules barring foreign funds from directly buying up bank loans are aggravating India’s distressed debt market, says Bank of America Corp.

The US lender said that in the past year, it had to team up with local asset reconstruction companies to purchase loans made to firms including Seven Hills Hospitals and GTL Infrastructure Ltd., that had soured. 

The lender that is looking for more opportunities in India, which has the world’s worst non-performing debt ratio, said that the requirement for local partners is proving to be a hindrance. A report in the HinduBusinessLine online quoted Jayesh Mehta, country treasurer at Bank of America Merrill Lynch.

It is to be noted that current regulations in India make it imperative for a foreign bank to bid through the ARC route when a distressed debt is auctioned, Mehta said. He added that there should be regulations providing direct access for foreign companies to bid without an intermediary. According to  him, this would create depth in the distressed debt market.

Notably, 29 asset reconstruction companies have been set up in India under a 2002 law passed to help reorganise non-performing credit, RBI data show. However, many of these haven’t been active due to a lack of funds.

The report said that there are overseas investors including KKR & Co., Blackstone Group LP and SSG Capital Management Ltd., that have either set up their own asset reconstruction companies in India or bought into existing ones. However, there are others like Bank of America and SC Lowy that have structured deals through such firms by paying them a fee.

Source: Media reports


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