India's $210b bad debt burden is luring profit-hungry offshore investors

Foreign funds Oaktree and Varde Partners are hoping to cash in on the trend.

Bloomberg reports that a growing number of offshore investors from as far as Canada are turning their sights to cash in on India’s staggering $210b bad debt burden with the hopes of making high return on stressed asset sales. 

The sale of soured loans from banks to third-party investors have climbed in recent months with Canadian pension fund manager Caisse de dépôt et placement du Québec reportedly making $600m available to Edelweiss Group for investment in local distressed assets.

Foreign funds including Oaktree Capital Group LLC and Varde Partners have similarly expressed interest to participate in the fledgling market with some market experts pegging annualised returns at about 15%.

Also read: Can Indian banks weather the last wave of bad loan resolution?

India’s banking system is caving under the massive weight of its accumulated bad debt burden which has pushed four Indian state banks to a combined $1.74b (117.29b rupees) year-end loss as the central bank tightened bad loan provisions and withdrew six loan-restructuring schemes in the past few months.

Also read: India's massive bailout fails to buoy banks out of earnings rut

Gross non performing assets (NPAs) in India continued to climb after peaking at 10.14% in March after moderating from 9.04% in June 2017 to 8.93% in September 2017, according to CARE Ratings, with private sector NPAs ballooning by a whopping 450% from $2.91b (Rs 19,800 crore) at the end of FY2013-2014 to $16.03b (Rs109,076 crore) as of end-March.

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