Bad bank creation likely to spur interest from global investors

After the parliament’s north block announced the formation of a bad bank on Thursday to extract struck loans, many top investors across the globe like SSG Capital, Deutsche Bank, SC Lowy, Varde Partners and Fiera Capital have expressed interest by raising stakes in India’s $300 billion distressed assets industry amid prospects of quicker solutions, The Economic Times, reported on Friday. India’s first bad bank will have two legs, National Asset Reconstruction Company (NARCL) and India Debt Resolution Company (IDRCL).

According to the publication, bad banks would definitely garner more interest from global investors to India’s non-performing loan market. It also added that the single window platform for global investors will also be a big positive.

However, the most important factor would be the cost of bad loan acquisition from banks, it said. Further, price expectations has to be realistic to generate interest among international distressed asset investors.

Asset sale through cash and security receipts

NARCL would acquire stressed assets by making an offer to the lead bank of any consortium of lenders. In phases, the NARCL will aim to acquire soured loans worth about Rs 2 lakh crore from various commercial banks.

Then, IDRCL will try to sell the acquired corpus of distressed assets through bids, which should draw international distressed asset investors.

Sale of assets will be through a combination of upfront cash and security receipts, which are effectively debt securities. For Rs 30,600 crore, the government will provide guarantees against these marketable instruments.

ICICI Securities in a note on Friday, said that the backstop arrangement of Rs 30,600 crore implies that 18% realisable value of Rs 2 lakh crore in assets is proposed to be acquired.