SBI, Brookfield set up JV, Rs 7,000cr fund for bad loans

MUMBAI: At a time when stressed loans of commercial banks have crossed Rs 8.2 lakh crore, Canada's Brookfield Asset Management has committed Rs 7,000 crore to buy bad loans in India through a joint venture with SBI.

A statement issued by SBI on Wednesday said that the country's largest bank has committed up to 5% of total investments into stressed assets. "The JV will independently evaluate and invest in various stressed assets, and will rely on Brookfield's operational expertise to manage recapitalized businesses," a joint statement said. The JV with Canada's largest alternative asset manager, at a later stage, will seek participation from other lenders.

At present, banks are dealing with bad loans by either creating an in-house division to deal with defaulters or by selling loans to asset reconstruction companies (ARCs).

ARCs have been issuing security receipts to banks in lieu of loans they purchase since they do not have funds. By creating an asset management company, SBI has addressed several issues. The AMC will lead investors into the fund and it will also bring in partners with skills to turn around troubled businesses.

SBI chairman Arundhati Bhattacharya hoped the collaboration with global players will enable banks to find an alternate solution to the stressed asset issue. According to her, this approach will be more acceptable to both lenders and borrowers in cases where promoters are unable to infuse funds and lenders are reluctant to take additional exposure.

Brookfield India head Anuj Ranjan said, "This is a great opportunity for us to continue to invest in the long-term India story, and we're pleased to be expanding our private equity platform here." Bulk of Brookfield's global assets are in property followed by power and infrastructure sector.

SBI's gross bad loans touched Rs 72,792 crore, or 5.1% of their total loans. After making provisions of Rs 7,949 crore, its net non-performing assets fell to 2.8%. The provision coverage ratio - the cushion that banks keep to protect against bad loans - is 65.2%

The bad loans are deadweight on the books of banks and they prevent them from growing their loans. One of the traditional methods used by banks to clear bad loans has been to create a "bad bank" - a fund which will acquire all the bad loans and free up the original lender.

The government has been thinking of setting up a stressed asset fund in association with banks that could provide equity or debt capital to stressed companies. The RBI has however opposed majority ownership by banks in any stressed asset funds. The Indian Banks Association had in May mooted a proposal and sought RBI's view on a bank-sponsored stressed asset fund.

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