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The private credit market in India is evolving and needs to primarily focus on flexibility of capital structure to succeed, said panellists at Mint’s India Investment Summit.

“As private credit providers, if we have to be meaningful for Indian Inc., we have to get our act right in terms of being flexible in our mandates. If we are able to do it, then we will be able to play a serious role," said Kalpesh Kikani, chief executive officer, Piramal Alternatives.

“It is no longer new, and we have been approaching almost $1 trillion of assets under management (AUM) globally in this (alternative) asset category which is like a serious asset class," Kikani added.

Other participants of the event said that global funds are now interested in India, and have raised a significant amount of capital over the last couple of years. They said demand for Indian paper was at a high, and private credit is growing in size. Global fund managers have raised close to $300 billion of private credit capital over the last two years, they added.

“A large chunk of this is meant to go to the US and Europe. But given the search for yield, people are trying to blend their returns by coming to markets like India," said Indranil Ghosh, managing director, Cerberus Capital Services Pvt. Ltd.

Srini Sriniwasan, managing director, Kotak Investment Advisors, said notwithstanding all the moratoriums, the reality is that it is very hard for businesses to operate at sub-optimal levels for very long periods of time. “We had a very hard shutdown and now have a soft shutdown and don’t know if we will have another hard shutdown or a soft opening. It is very uncertain," Sriniwasan added.

According to Venkat Ramaswamy, vice chairman, Edelweiss Financial Services, mutual funds had no business being in the private credit business.

“The reality is historically non-bank financiers, mutual funds and, in a small way, private credit funds used to play in this market. Mutual funds, I have no idea what they were doing in this business," said Ramaswamy, adding that luckily not too much harm was done and that left the private credit funds to provide long-term, patient and flexible capital.

Meanwhile, distressed debt investors said for the resolution of India’s bad debt problem the Insolvency and Bankruptcy (IBC) Code needs to work better. “The start of IBC is to protect the company. The longer you take, the worse it gets. The timing is critical and timing delays are due to infrastructure, process or other impediments. We have been on both sides. We have had difficulties in putting companies into IBC. We have also bought a firm under IBC as an investor, which in itself was a long process. It was a failed bid from the previous process. Bidders walked away without any repercussions. Automatically the asset becomes tainted and deteriorated. That creates a difficult environment for both the creditor and buyer on why he is changing the bid. This is an important point that people miss. When a bidder is bidding for a company, there has to be a finite time frame," said Shyam Maheshwari, partner, Ares SSG Group.

“Now, what we have seen over the last year with IBC being suspended, we saw a profusion of capital, both foreign as well as private domestic capital go into a number of special situations deal, real estate-backed financing as well as a number of transactions driven by the NBFC liquidity crisis," said Aniruddha Sen, partner, Trilegal

Bankers said IBC is not the only solution for the resolution of distressed cases. The slow pace of resolution under IBC has forced banks and investors to look at options outside the IBC, including one-time settlement.

“If I see overall cases, resolution happened for 300 out of the 4,000-odd cases. 7,000 cases are pending for admissions. In my ARC, some cases have been pending for admission for two years. I have seen promoters buying assets in liquidation. So what’s next. IBC is not the only solution. You can’t expect only the IBC system to resolve NPA (non-performing assets) of 10 lakh. It should be a combination of IBC, pre-packs, ARCs, and stressed funds," said R.K. Bansal, managing director and chief executive, Edelweiss ARC.

After experimenting with the IBC, the government is now looking to set up a bad bank. Vishal Gupta of SBI Capital Markets said there was a need for a bad bank to resolve the bad loans worth 10 trillion in the system. “Current ARCs and funds have a capacity to buy these assets. They have enough assets to cherry pick from. There is a need to house these assets in some structure, and from there, you can offload to banks, which can in turn focus on the business. Once the debt is aggregated a specialized team can find a solution for these assets. That was the basic idea for a bad bank. It’s a mechanism to unclog the system," Gupta added.

shayan. g@livemint.com

Shayan Ghosh
Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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