No longer distressed

Global investors big buyers at bad asset auctions

Distressed assets market in India is hotting up.

New global distressed debt investors such as Spinnaker, Cargill, Avenue and JC Flower are now entering India, as investments in distressed assets has crossed $1 billion.

WL Ross, GE Capital and foreign banks such as Standard Chartered, which have a presence in India, are globally active in distressed assets market.

After seeing the response of investors in stressed assets at recent auctions of bad loans, many Indian banks have joined the auction bandwagon, consulting firm, PriceWaterhouseCoopers, said in its latest report on "NPL (non-performing loans) Asia".

PwC has helped Indian banks like ICICI Bank, HSBC, State Bank of India (SBI) and Punjab and Sind Bank to sell outstanding principal loans of $997 million thus far. Bad loans are normally sold at a discount as high as 80 per cent.

The distressed asset market has seen the largest bad loans auctions by ICICI Bank.

The country's largest private sector bank sold $330 million (over Rs 1,200 crore) of loans in an auction to Standard Chartered Bank. ICICI Bank had sold loan assets with net value of Rs 258 crore at a loss of Rs 50 crore. These loans pertained to over 300 accounts.

HSBC too sold about $80 million of bad loans of 29 accounts to the highest bidder, JP Morgan. State Bank of India (SBI), the country's largest commercial bank, and its associate banks are the most prolific, though in small tranches.

"With impending implementation of Basel II norms from March 2007, increased emphasis on banks' asset quality, increasing demand for bank credit and consequently, increasing capital requirements, we expect to see many more NPL auctions in 2006-07," PwC said.

A small sized public sector bank, Dena Bank, has appointed PwC to assist it in carrying out its NPA auction.