Deutsche Bank to set up a bad-loan buying unit in India

Pedro Gonçalves
Deutsche Bank to set up a bad-loan buying unit in India

Deutsche Bank is considering setting up an asset reconstruction company (ARC) in India to acquire bad loans, Bloomberg reported.

Deutsche Bank decided to set up its own assets reconstruction company (ARC) to buy and reorganize non-performing credit as current Indian rules restrict overseas investors from direct purchase of soured loans from domestic lenders. 

With this move, Deutsche Bank will join foreign investors -- Lone Star Funds, KKR and BlackStone -- that have either set up ARCs in India or bought existing ones.

Bank of America (BofA), too, is planning to establish a similar company in India, the news agency reported.

More than 29 ARCs have been set up in India after Parliament passed a regulation in 2002 to help banks clear their balance sheets through the sales of bad loans. In 2016, Prime Minister Narendra Modi's government tweaked the rules to allow overseas investors to fully own asset reconstruction companies. Previously, they could only buy through a tie-up with local firms. 

India, along with Italy, has one of the worst bad loan ratios among the world's top 10 economies, as per Bloomberg data.