Stressed funds set to make beeline for India on spike in Covid-driven NPAs

Bankers expect bad debt worth $35 bn to be up for grabs, in addition to $110 bn already in the system; Blackrock, SBI Cap, Brookfield eyeing stressed assets

With bad debt expected to surge — especially from firms in the medium to small segment — in the coming months because of the pandemic, bankers are expecting several stressed funds to set up shop in India.

Bankers are expecting an additional bad debt worth up to $35 billion which will be up for grabs, in addition to the $110 billion of non-performing assets (NPAs) already in the banking system. “Cash flows of several Indian firms have been impacted, hence the companies will be restructuring their books. This is an opportunity for the stressed funds to set up shop in India,” said a banker.

BlackRock, State Bank of India Capital Market, and Brookfield are among the companies that are eyeing to invest in the stressed Indian assets.  “We can partner international firms interested in investing in distressed assets,” SBI Chairman Rajnish Kumar said.  

The industry is expecting increased bad debt from hospitality, hotels, travel, tourism and airlines. “Due to lack of guests, several small hotels are up for sale in the tier-II cities. Even in the tier-I cities, several hotels are unable to pay staff. These companies are the prime candidate for takeover by the stressed funds,” said another banker.  Even in the financial sector, several assets are up for sale, including Reliance Capital and DHFL. Similarly, real estate projects are on sale, too.

A head of an asset reconstruction company (ARC) said the recent move by the Reserve Bank of India (RBI) to stop ARCs from taking the stressed companies to insolvency courts may hit sentiments of the stressed funds who are planning to set up companies in India. “The Indian Bankruptcy Code (IBC) is fast losing its attraction for investors like us. We have to now look at other alternative routes to invest in Indian companies. It’s a temporary setback,” the official said.

According to rating agency ICRA, the total amount of the debt that could be restructured is between Rs 6 trillion and Rs 10 trillion. Banks have an asset book of Rs 100 trillion and another Rs 35 trillion is from non-bank lenders.