Foreign commercial banks such
as Deutsche Bank, Bank of America and Barclays
Bank are looking at investing in stressed assets
in India. These banks are interested more in buying
single exposures rather than acquiring a portfolio
of bad loans. A lot of funds in Germany are also
considering investing in bad loans in India.
Experts opine that India is fortunate to be in
the development stage of its bad loans market,
when globally it has turned to be a sellers market
since there is an oversupply of investible funds
and undersupply of bad loans. After having dealt
with their non-performing assets (NPAs) in East
Asia, these banks are now looking at investing
in bad loans themselves.
Foreign banks are also keen on setting up asset
reconstruction companies (ARCs) in India, which
is seen having a $25-30 billion market of bad
loans. Vulture funds and buyout funds are also
waiting in the wings hoping regulatory framework
will allow them to participate soon.
Currently there is no bar on foreign banks investing
in bad loans, but the right structure for investment
is still to be defined, the absence of which is
acting as a roadblock.
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| The Indian
Cabinet recently cleared a proposal to allow 100
per cent foreign direct investment (FDI) through
the automatic route in construction. It has also
decided to allow 100 per cent FDI through the same
route in the construction of townships, housing,
commercial premises, hotels, resorts, hospitals,
educational institutions, recreational facilities,
and city and regional level infrastructure. So far,
prior approval of the Foreign Investment Promotion
Board (FIPB) was mandatory.
However, in order
to avoid speculation in real estate by foreign investors,
the sale of undeveloped land has been prohibited.
Undeveloped plots would mean where roads, water
supply, street lighting, sewerage and other conveniences
have not been made available. It will be necessary
for the investors to provide such infrastructure
and obtain the completion certificate from the concerned
local body or service agency before they can be
allowed to dispose of the plots.
Under the new
norms, the minimum area to be developed for serviced
housing plots will be 10 hectares (or 25 acres),
while for construction development projects, it
will be a built-up area of 50,000 sq metres. In
case of a combination of projects, meeting either
of the two conditions will suffice. As per the present
guidelines, the minimum area to be developed is
100 acres and a minimum of 2,000 dwelling units.
Investment will
also be subject to a minimum capitalisation of $
10 million for wholly owned subsidiaries and $ 5
million for joint ventures with Indian partners.
The funds will also have to be brought in within
six months of commencement of business.
The norms
stipulate that the original investment cannot be
repatriated within three years of the completion
of the minimum capitalisation. However, the investor
may be permitted to exit earlier than that with
prior approval of the government through the FIPB.
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