Foreign banks eyeing stressed loan assets

The nascent market for bad loans in India is expected to witness increased activity with a host of foreign commercial banks such as Deutsche Bank, Bank of America and Barclays Bank are exploring business opportunities in acquiring non-performing assets (NPAs) in India.

"Foreign commercial banks are looking at investing in stressed assets in India. They are interested more in buying single exposures rather than acquiring a portfolio of bad loans. A lot of funds in Germany are also considering investing in bad loans in India," said Andrew Lee, the Australia-based director (financial advisory services) of consulting firm KPMG.

He said India is fortunate to be in the development stage of its bad loans market when globally it has turned to be a sellers market. There is oversupply of investible funds and undersupply of bad loans.

After having dealt with their non-performing assets (NPAs) in east Asia, these banks are now looking at investing in bad loans themselves.

Deutsche Bank is active in the bad loans market in Asia for the last few years, though it is a seller of bad loans in its home country, Germany. Bank of America and Barclays Bank are also looking at opportunities in the bad loans market across the globe.

Foreign banks are also keen on setting up asset reconstruction companies (ARCs) in India, which is seen having a $25-30 billion market of bad loans. Vulture funds and buyout funds are also waiting in the wings hoping regulatory framework will allow them to participate soon.

The global market for bad loans is in the region of $1,000 billion, with Japan, China and Germany together accounting for almost $300 billion each.

Carlton Pereira, managing director-corporate finance, KPMG India, said there is no bar on foreign banks investing in bad loans, but the right structure for investment is still to be defined. The absence of a defined structure for investments is acting as a roadblock.