Leading Indian bad debt recovery company seeks global partners to boost presence

An abandoned power plant controlled by Asset Reconstruction Co. of India Ltd. Photographer: Prashanth Vishwanathan/Bloomberg

An Indian distressed assets investor backed by Avenue Capital Group LLC is looking for global partners to buy as much as 55 billion rupees ($665 million) of soured loans this year.

“We are talking to a group of global investors including Cerberus Capital Management, Bain Capital, Oaktree and A B CarVal as they bring in strategic expertise to debt resolutions,” Pallav Mohapatra, chief executive officer of Asset Reconstruction Company (India) Ltd., said in an interview. This will help the company recover bad loans it buys and boost its income, he said.

ARCIL, with assets of more than 162 billion rupees, is looking to acquire soured debt from “promising” sectors such as renewable energy, road, steel and logistics. It may bring Avenue Capital as a co-investor, Mohapatra said.

While Indian banks have cut back on the sale of bad loans to local asset reconstruction companies in recent years, the market has grown as the economy gradually recovers from the pandemic. The nation’s lenders wrote off bad loans worth 2.09 trillion rupees in the year that ended March 2023, up 20% from the previous year.

The bad loan buyer, known as asset reconstruction company in local parlance, purchases assets through a combination of cash and security receipt, an instrument issued in lieu of upfront cash. ARCIL bought soured debt of about $500 million in the 12 months to March, up from $340 million in the preceding year.

“Being the oldest asset reconstruction company we are keen to get the technical industry knowhow from global investors while we know the business of bad loans,” Mohapatra said.

Still, as the sector recovers from a shadow banking crisis in 2018, the Reserve Bank of India sees the gross bad-loan ratio of local banks falling to 3.6% by March, from a 10-year low of 3.9% a year earlier.