India breaks the circle of distressed debt

India’s distressed debt market has a problem. Specialist firms, often set up by a consortium of banks, buy the assets from one arm of a bank, package them up, and then have to sell them back to the original banks. After intense lobbying from firms such as Arcil, the Indian government has changed the rules. Niranjan Rajadhyaksha reports.

The Indian market for distressed debt is showing the first signs of life. Asset Reconstruction Company of India Ltd (Arcil) sold the assets of seven large companies in the last quarter of 2005. Arcil had acquired the rights to dispose of these assets when it bought loans extended to these companies that were non-performing from a group of banks a few months earlier. India does not have a cash market for non-performing loans as yet.

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