StanChart plans SPV for bad loans

UK-based Standard Chartered Bank is exploring setting up of special purpose vehicles (SPVs) in collaboration with other state-owned banks for acquiring bad loans.

The bank's general manager, South Asia, Jaspal Bindra said: "there is a possibility that we will go for the SPV route for large-sized acquisitions of bad loans. For smaller bad-loan acquisitions, we might not consider SPVs".

The bad loans market in India has made a beginning but is yet to gain momentum. Asset Reconstruction Company India Ltd (Arcil) in the last one year acquired over Rs 4,000 crore of bad loans till September 30, 2005 and resolved cases of about Rs 250 crore.

Arcil has been stuck of late because of its inability to buy bad loans from banks against cash and wanted the government to allow foreign direct investment (FDI) in asset reconstruction companies (ARCs).

More players could not enter this business as it requires huge capital funding. The government on Wednesday allowed 49 per cent FDI in ARCs.

At a seminar on "Southern Multinationals"�A Rising Force in the World Economy" organised by International Finance Corporation (IFC), Bindra pointed out that lack of clarity in regulations and uneven playing fields distort the scenario in Asia. There is a varying degree of sophistication among banks and credit derivatives are still in the infancy stages in India.

He said the other challenges include the inter-bank participatory risk and evolution of Islamic banking. Speaking of taxation-related issues, Bindra said that varying know-your-customer (KYC) standards and hidden transaction costs are key impediments to cross-border deals.

HSBC Bank's chief emerging markets economist, Philip Poole, said rising interest rate differential and structural concerns would bring about weakening of the dollar in the global markets.

Speaking on financing south-south business activities, Poole said that growing wealth levels in Asia,especially China, the rising supply of capital and increasing savings rate are the key drivers for investment abroad.

He also opined that domestic banks have lesser expertise in pricing of cross-border transactions.