Stressed project loans: Will banks have to take a haircut?

Disclosures by bankers in recent months have highlighted a huge divergence between the quantum of stressed project loans as assessed by the Reserve Bank of India (RBI) and by the banking sector. This divergence can be attributed to differences in interpretation of RBI regulations which for the first time prescribed such disclosures for banks.

Be that as it may, the problem of stressed loans in the Indian market has clearly reached the tipping point in terms of having an irrevocable effect on the country’s economy. To resolve the situation there is an urgent need to find buyers to fund stressed loan buyouts.

The good news is that an array of international and domestic distressed asset funds – with both buying interest and funding capability – are operating in the Indian market. They include the joint investment platform formed between Infrastructure Leasing & Financial Services and North American private equity fund house Lone Star; the tie-up between Piramal Enterprises and Bain Capital Credit India Investments; and the fund formed by Kotak Mahindra Bank and the Canada Pension Plan Investment Board.

Anjan Dasgupta is a partner and Malav K Virani is a senior associate at HSA Advocates. HSA is a full-service firm with offices in New Delhi, Mumbai, Bengaluru and Kolkata.