IFC setting up 3 funds to buy out stressed assets in India

IFC setting up 3 funds to buy out stressed assets in India

NEW DELHI: The International Finance Corporation (
IFC) is setting up three
funds to acquire as much as a fifth of the
stressed assets that emerge from
India’s ongoing resolution of bank debt that’s gone bad. The World Bank’s private finance arm will aim to revive such assets so that they become profitable and
jobs can be protected.

“We are working on different funds — one for corporate, one for SMEs (small and medium enterprises), one for retail,” IFC South Asia director Mengistu Alemayehu told ET. “We are going to help solve 15-20% of the distressed assets problem. We invested some and we are getting many other investors to participate in it. It is going on quite well.” Alemayehu declined to give details such as the size of the funds.

“One of the key funds is already in the works — we just cannot announce it due to issues related to regulators in some countries,” he said. India’s stressed assets are pegged at about Rs 15 lakh crore and 20% of that would amount to about Rs 3 lakh crore. The funds will be looking to pick up the non-performing assets of banks and housing finance companies, he said, adding that International Finance Corporation will aim to make them profitable and sustainable.

IFC HAS INVESTED $2.6 B IN INDIA

“We want to restructure these companies, so jobs can be preserved,” Alemayehu said. “Many of these companies can be restructured and strengthened with good management and good structure. They can become more profitable and sustainable. That is our approach, not just to take the assets and sell them.”

The fund will focus on mortgages, credit cards and individual loans. IFC has made more than 40 investments in India, adding up to a total of $2.6 billion in FY 18, its highest so far. Its India investments in FY16 was $1.1billion. “This is a record — this will make us the single-largest investor of this magnitude,” he said, referring to the amount IFC has already ploughed into the country. Most of this investment is long term and in critical economic areas, he said. IFC’s infrastructure investment in India has just crossed $1billion, he said.

The institution started its India operations in 1958 and was an early investor in mortgage company HDFC in 1978 as well as Bharti Airtel, among others. Alemayehu is upbeat about India’s growth prospects. “When you take the long-term view, the fundamentals of this country look good,” he said. The goods and services tax (GST), the bankruptcy framework and direct benefit transfer were commendable, he said, adding that such systemic reforms will attract investments.

“Everyone sees that India is a success story and the country is going to do well,” he said. “In the short term, you have issues, given some macroeconomic imbalances happening in the rest of the world, such as oil prices, issues with trade, and things like that.

OWNERSHIP OF PSU BANKS

Alemayehu said there could be no generalisation about the change of ownership in state-owned banks. “I have no ideology,” he said. “I have done many privatisations for IFC. There are banks in some countries that are state-managed and are good and have done well. There are some in certain countries that are not doing well. I would take it case by case.”

Alemayehu said the key measure was accountability and a governance system that ensured this. “If things don’t work, there should be clear accountability,” he said. “Who are you going to hold responsible? For a country of India’s size, when you have over 50% of your system in state-owned banks, there has to be some level of accountability. The most important thing is how each one of them are being accounted for the decision they are making, the risks they are taking, the level of growth they are having. But the financial system has to be very efficient.”

Asked if it will continue to invest in housing finance companies in the non-banking finance company (NBFC) space or enhance its due diligence following the debt-default crisis at IL&FS, he said IFC was not a speculator.

“Even before all this happened, we assumed that what happens if everything goes wrong, what is the absolute worst scenario that I have to put up with? That is the mentality we have. We are not speculators,” he said. Funding is extremely important and NBFCs should have a high level of capital because they don’t have a deposit base, he stressed. “I want them to have very long-term funding arrangements in place. If you do not have that, you have a problem,” he said.