India is considering allowing foreign investment funds to buy stressed loan portfolios of banks
India is considering allowing foreign investment funds to buy stressed loan portfolios of banks, a move which is expected to see billions of dollars invested by institutional investors from the Middle East and other regions.
The proposed relaxation in norms for selling of stressed loan portfolios of banks is aimed at enabling banks to clean up their mounting non-performing assets (NPAs), according to government sources.
Currently, banks are allowed to sell their stressed loan portfolios only to asset reconstruction companies.
“The finance ministry has mooted some suggestions to relax norms related to investments by foreign funds in India’s stressed assets and one of the suggestions is to allow them (foreign funds) to acquire stressed loans from banks,” a senior federal corporate affairs ministry official told Arabian Business.
“Our ministry is currently examining these suggestions,” the official added.
The stressed asset portfolios of banks in India are estimated to be about $143 billion, the official said.
The mounting NPAs have been choking lending by banks in the recent years, adversely affecting economic growth.
Industry sources said if the government relaxes norms related to selling of stressed loan portfolios by banks, leading Middle East-based funds will be among a set of foreign funds that are expected to participate in such investments in a big way.
“There is a lot of appetite among foreign funds, including institutional investors from the Middle East region for investing in stressed portfolio assets in India, and if this (allowing foreign funds to acquire stressed loans from banks) is allowed, we will see large scale participation by these funds in such investments,” Srini Sriniwasan, managing director of Kotak Investment Advisors, told Arabian Business.
Abu Dhabi Investment Authority (ADIA), Investment Corporation of Dubai and Investcorp of Bahrain are among some of the Middle East-based institutional investors which are active in investing in various sectors in India.