FIIs may get to invest $1b in bad loans mart

Foreign institutional investors (FIIs) are likely to be allowed to invest up to $1 billion in the security receipts of distressed assets of Indian banks.

Currently, foreign investment is not permitted in distressed assets.

As a result, a host of foreign banks are keen to invest in the restructuring of Rs 80,000-odd crore bad loans in the Indian banking system.

Citigroup, JP Morgan and Standard Chartered Bank have shown interest, with a few having already picked up a small share of distressed assets.

Other global majors such as Merrill Lynch, Morgan Stanley, Goldman Sachs and Lehman Brothers, though constrained by current regulations, are hopeful of the Indian government opening up the market for foreign institutional investors (FIIs).

"We are looking covering at different aspects in the property services market. This will include taking over distressed assets," said Ian Watt, managing director, Old Mutual Properties.

This South-Africa based property solutions company has just entered the Indian real estate market. Many foreign fund houses in the business of buying out distressed assets have also shown interest like Actis, formerly CDC.

The Indian market had also appealed to New Bridge in the past and today High Bridge is keen to participate in this market. There has been a lot of interest in India's NPL market, primarily because the quality of NPLs in India are better than those in China, said Ashwani Puri, heading advisory services at PricewaterhouseCoopers (PWC).

"India is seen as being better than China because of the private sector framework for asset reconstruction companies," he added.

China has been a high priority for global investors. However, off late with the norms being fuzzy and delays taking place in terms of completing the sale of non-performing loans (NPL), some global investors are looking at exiting China and are thus eyeing new markets.

"I believe that the Indian system has a greater degree of confidence and this offers investors a more conducive environment," said Puri.

Global investors are also looking at the NPL markets of Germany, Eastern Europe and South America.

However, as the Indian economy is growing at a faster pace and demand rising as gauged from the growth in gross domestic product, global investors are more keen to participate in the Indian market.

Meantime, FII investments in the Indian debt market has already crossed the $1.75-billion mark this year.

On Monday last, the Securities and Exchange Board of India imposed a cap of $1.75 billion on investment in government paper, with an additional cap of $500 million for corporate debt paper.