Deutsche Bank is setting up a subsidiary in India to purchase and reorganize soured debt as it seeks to profit from India's changing regulations.
The German financial group hopes to profit by buying and restructuring bad debt as India cleans up bad loans in the nation, «Bloomberg» reported, quoting people familiar with the matter. India has one of the world's worst non-performing loan ratios.
Deutsche Bank decided to set up its own assets reconstruction company (ARC) to buy and reorganize non-performing credit as current Indian rules restrict overseas investors from direct purchase of soured loans from domestic lenders.
More than one ARC
More than 29 ARCs have been set up in India after Parliament passed a regulation in 2002 to help banks clear their balance sheets through the sales of bad loans. In 2016, Prime Minister Narendra Modi's government tweaked the rules to allow overseas investors to fully own asset reconstruction companies. Previously, they could only buy through a tie-up with local firms.
Some market players are expecting that authorities might eventually allow foreign investors to bid for soured debt without local tie-ups. This may have deterred some from setting up their own Assets Reconstruction Companies (ARC). Others, such as Lone Star Funds has already moved ahead with the set up of its ARC in India, while KKR & Co has applied for an ARC permit.
