RBI Governor Rajan asks banks to refrain from taking majority stake in stressed-debt funds

According to Reserve Bank of India’s Governor Raghuram Rajan, banks should refrain from taking a majority stake in planned stressed-asset funds, and prefers external investors and funds to take up that role.

His words came amid the Indian government’s plans to find ways to lower bank’s distressed debt pile of $120bn, or 11.5% of all loans.

However, bankers have said talks are on for two kinds of stressed-asset funds: one that would buy bad loans from the banks and the other that can invest in companies needing more capital.

Rajan also stressed that pricing would be a key issue for a stressed fund if it wanted to buy bad loans from the banks.

The government, as part of its plan of implementing new bankruptcy laws, is considering setting up an external panel to decide on the quantum of ‘haircuts’ taken on the bad loans, mainly due to disagreements between companies and banks at the time of transacting on such loans.

Source: Reuters

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Stressed asset specialists queue to start an ‘ARC’ in India

Close to 12 companies applied to the RBI for licenses to start an asset reconstruction company in India following the passing of the Bankruptcy Bill (2016) in the Lok Sabha. Applicants ranged from foreign distressed asset specialists to domestic investors with access to considerable funds.

Stressed assets (which include gross bad loans, restructured assets and written-off accounts) for the banking system rose to 14.5%, as of 31 December 2015, compared to 9.8% in March 2012, according to data from RBI.

ARCs play an important role in reconstruction of such stressed assets, RBI said in 2014 when it released a new framework to revitalize the distressed assets.

Applicants who’ve applied include JC Flowers & Co., in partnership with Ambit Holdings Pvt. Ltd., domestic financial services firm IIFL Holdings Ltd. and Sudhir Valia, former CFO of Sun Pharmaceuticals.

Source: DealStreetAsia