In an effort to clean up its balance sheet, State Bank of India (SBI), India’s largest lender, has signed an agreement with Brookfield Asset Management Inc to form a joint venture, which will invest in stressed assets.

Under the proposed joint venture, Brookfield will commit about ₹7,000 crore and SBI up to 5 per cent of total investments into stressed assets.

Brookfield is a global alternative asset manager with $240 billion in assets under management. It has an over 100-year history of owning and operating assets with a focus on property, renewable power, infrastructure and private equity.

It is listed on the New York, Toronto and Euronext stock exchanges.

The joint venture will be in the nature of an alternative investment fund. Such funds are regulated by the capital market regulator SEBI.

Rising NPAs The move to form a joint venture comes in the backdrop of SBI’s gross non-performing assets jumping from ₹56,834 crore as at September-end 2015 to ₹98,173 crore as at March-end 2016 after the RBI initiated a banking industry-wide asset quality review. Also, asset reconstruction companies (ARCs) are strapped for funds to buy stressed assets.

SBI, in a statement, said, “The proposed JV will independently evaluate and invest in various stressed assets, and will rely upon Brookfield’s operational expertise to manage recapitalised businesses. The proposed JV may, at a later stage, seek participation from other lenders in the identified assets.”

SBI Chairman Arundhati Bhattacharya said this approach of collaborating with global players will enable banks in general and SBI, in particular, to find alternative solutions for resolution of stressed assets.

She opined that such an approach will be more acceptable to both lenders and borrowers in cases where the promoters are not able to infuse funds and lenders are reluctant to take additional exposure.

India Ratings and Research (Ind-Ra), in a recent note, observed that ARCs will need to re-orient themselves if they are to facilitate the resolution process of the ₹6-lakh-crore bad debt pile-up in Indian banks.

 

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