India is considering a new category of alternative investment funds that will focus on acquiring distressed assets from banks and shadow lenders, a move aimed at solving some of the world’s highest bad debts.
The fund will be allowed to purchase stressed assets directly from banks and non-bank financial companies, people with knowledge of the matter said, asking not to be identified as the file is not public. Currently, investors can only access bad debt through securities issued by asset rebuilding companies, but the new fund category will allow them to do so directly. This will give foreign investors, including global hedge funds, easier access to the mountain of local bad debt.
Prime Minister Narendra Modi has been spearheading efforts to revive the economy and a significant part of this is based on the increase in bank lending which opens the risk of a further increase in bad debts due to the virus epidemic. Using an alternative investment fund to buy bad debt from banks would help ease the burden on banks as they grapple with what was the world’s worst bad loan ratio even before the pandemic virus to virtually disrupt economic activity during the world’s biggest lockdown.
Discussions are at a very preliminary stage and the aim is to complement the efforts of asset rebuilding companies to reduce bad debts from these lenders, officials said. A spokesperson for the finance ministry was not immediately available for comment.
Alternative investment funds are a category of local, locally regulated hedge funds that have become increasingly popular vehicles for a range of investors, from wealthy local investors to struggling global credit funds. Investors must commit at least Rs 10million and largely include global hedge funds, wealthy local investors, and investment vehicles of tycoons.