(Bloomberg) -- India's distressed debt market is being hobbled by rules that bar foreign funds from directly buying up bank loans, according to Bank of America Corp.
In the past year, the U.S. lender has had to team up with local asset reconstruction companies to purchase loans made to firms including Seven Hills Hospitals and GTL Infrastructure Ltd. that had soured. As it scouts for more opportunities in the nation with the world's worst non-performing debt ratio, the requirement for local partners is a hindrance, said Jayesh Mehta, country treasurer at Bank of America Merrill Lynch.
“Current regulations demand that a foreign bank must bid through the ARC route when a distressed debt is auctioned,” Mumbai-based Mehta said in an interview. “We should have regulations providing direct access for foreign companies to bid without an intermediary. This change is required to create depth in the distressed debt market.”
Twenty-nine asset reconstruction companies have been set up in India under a 2002 law passed to help reorganize non-performing credit, RBI data show, though many of these haven't been active due to a lack of funds.
Bank of America was the sole bidder in an auction on Feb. 11 where SBI sought to sell loans made to Essar Steel Ltd., people familiar with the matter had said. The lender is considering scrapping the deal due to lack of demand for the debt, according to the people.
While overseas investors including KKR & Co., Blackstone Group LP and SSG Capital Management Ltd. have either set up their own asset reconstruction companies in India or bought into existing ones, others like Bank of America and SC Lowy have structured deals through such firms by paying them a fee.
--With assistance from Adrian Leung.
To contact the reporters on this story: Anto Antony in Mumbai at aantony1@bloomberg.net;Subhadip Sircar in Mumbai at ssircar3@bloomberg.net
To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net, ;Andrew Monahan at amonahan@bloomberg.net, Candice Zachariahs, Ken McCallum
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