The Hindu Business Line : GE arm on the lookout for distressed assets

GE Commercial Finance India, an arm of GE Capital, is scouting to take over distressed assets, banking sources have said. The company is also in talks with local State-owned banks to partner in the turnaround exercise, possibly through a joint venture, they added.

The Indian bad-loan market is estimated at $40 billion while the global market is valued at $3,000 billion.

GE Commercial Finance joins other clutch of financial institutions, such as IndusInd Bank, that are keen on the NPA-takeout business, but are awaiting legislative intent detailing the roadmap of such bad-loan restructuring, the sources added.

GE's public relations agency did not offer comment on the issue.

GE Commercial Finance is one of the fastest-growing non-banking finance companies in the country, with assets over $1.2 billion. It offers working capital needs, bill discounting facilities, aircraft financing, construction equipment financing as well as non-performing asset management.

The managed assets business, which was launched in 2002, currently offers services to financial institutions and banks.

GE's plan to set up a joint venture for this business is in line with its aim to keep its balance sheet relatively light of huge risk capital, generally associated with such bad-loan takeouts.

Promises of high returns have attracted local and some foreign investors into this sector.

The discounting rate applicable for such takeouts is expected to be in the region of 20 per cent. Some of the so-called bad assets have interest rates of 15 per cent and above.

There are, however, some riders to these takeouts, the banking sources noted. The expectation of a 20 per cent return is likely to be only for assets falling in the sub-standard categories.

On NPAs falling in the range of doubtful and loss assets, the discounting could be upwards of 50 per cent.

The yardstick that is being applied to these assets is the quality of the collateral backing of the NPAs.

If the collateral backing of the NPAs is of high quality, they are bound to attract low discounting rates. This is because the turnaround time for the assets is likely to involve lesser risk.

Despite the high discounting rates, the benefit of the takeout is that it would automatically result in cleaning up the balance sheet of the banks and FIs.

It can be mentioned that global finance giants such as Citigroup have been aggressive in this business in South-East Asian economies.