The Reserve Bank of India’s move to allow companies to raise loans under external commercial borrowing (ECB) route — to repay banks their dues categorised as non-performing assets (NPAs) — will likely pique interest of foreign stressed asset funds once again. So far, such investors have remained non-committal in picking up Indian assets after seeing legal obstacles in the resolution process under the Insolvency and Bankruptcy Code (IBC), say experts.
The RBI on Tuesday said NPAs, or loans heading towards the NPA stage, could also be sold off by banks to recover their domestic rupee loans. Such transactions will have to be carried out with entities permitted to give loans under ECB, the RBI said. These are typically regulated entities, banks, and registered foreign investors.
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Transactions cannot be carried out with overseas branches of banks present in India. Most of the stressed assets funds are private and not regulated. However, they can tie up with banks not present in India to enter indirect deals.
However, there is a restriction on the rate at which these firms can provide loans, which is LIBOR (London Inter-bank Offered Rate) plus 400-450 basis points, or roughly 6.0-6.5 per cent. However, the stressed assets funds prefer to take assets that provide yields of 20 per cent and above, say experts.
Source: Business Standard
