Indian banks’ bad debt is not all that bad for global debt investors

India’s highest-profile default this year and the government’s plan to inject capital into state-controlled lenders have thrust the nation’s bad debt into the spotlight. Some global debt funds increasingly like what they see.
The nation’s so-called dirty dozen — 12 large debtors that have been ordered to go through the bankruptcy courts — are one focus for funds including Bain Capital Credit and alternative investment firm Varde Partners. The government’s decision last month to inject Rs2.11 trillion ($32.5 billion; Dh119.7 billion) of capital into state-controlled lenders over two years, as well as the country’s new insolvency code that took effect in 2016, will help open the market for soured loans, according to Hong Kong-based loan and bond trading firm SC Lowy.

Asia’s richest banker Uday Kotak concurs, saying India’s $207 billion pile of bad loans is a once in a lifetime opportunity. Oaktree Capital Group LLC, the world’s largest distressed debt investor, has said it is “quite enthusiastic.” While funds must grapple with the relatively untested new bankruptcy system, their rising interest could help lenders meet capital-reserve requirements, as slower economic growth erodes borrowers’ ability to repay loans.
“Opportunities in India are near the top of our list anywhere in the world,” said Jeff Robinson, managing director, head of the distressed and special situations group at Bain Capital Credit. “The 12 cases are going to be the bellwether. So far we’ve been happy with how the processes have moved along. How they conclude is too soon to tell.”
Robinson, who is based in Boston, has already been to India three times this year, and doesn’t expect the pace of trips to slow.