The German lender is seeing three times as many financing deals compared to 2018, when shadow banking problems erupted, according to Rahul Chawla, head of global credit trading at Deutsche Bank’s India unit. He declined to provide specific figures, but said the bank had helped deploy “a few billion” euros in Indian structured finance deals.
For Deutsche Bank “this is a very, very high level of commitment,” Chawla said in an interview. He plans to increase the size of his portfolio by another 30% over the next two years.
Goldman Sachs Group Inc. and Apollo Global Management Inc. are among other global firms to have spotted similar opportunities in India’s bad debt problems, which were amplified by the shadow banking crisis that erupted in 2018 with the default of a major infrastructure lender. . As non-banking financial firms retreated, Indian businesses struggled to get credit, dampening broader economic growth.
Troubled Asian debt is one of Deutsche Bank’s few areas of growth as chief executive Christian Sewing pushes ahead with a deep restructuring that involves the loss of 18,000 jobs worldwide, about a fifth of the workforce total.
Chawla said part of Deutsche Bank’s push into India was to lend to business tycoons against their equity holdings. Prior to 2018, this activity was dominated by short-term funding from shadow banks and mutual funds, which have since declined.
“Before, borrowers in India demanded their terms on everything from loan size to pricing, and we were just one in the beauty parade,” Chawla said. “The scales then tipped, with borrowers seeking loans at prices that reward the risks lenders take,” he added, noting that business owners have been seeking longer-term funding since the crisis. .
Chawla declined to mention specific transactions. However, the Economic Times newspaper reported last month that Deutsche Bank loaned $200 million to the Mistry family against their stakes in Tata Sons, to ease tight liquidity conditions at Cyrus Mistry’s Shapoorji Pallonji Group.
In addition to loans to entrepreneurs, Deutsche Bank India offers business real estate loan, private equity firms and for the one-time settlement of debts by defaulting companies. The lender is also active in commerce and provides funds for the purchase of distressed debt securities.
Doubtful debts in Indian banks are expected to continue rising, Credit Suisse Group AG analyst Ashish Gupta wrote in a note this week. They increased at the end of 2019, partly due to the spread of the shadow banking crisis.
A court decision handed down last year should help Deutsche Bank’s credit trading business in India, as it is likely to further stimulate interest overseas by reassuring investors that they will not lose the reimbursement priority, Chawla said.
India has seen slow progress since the establishment of a bankruptcy court in 2016 to deal with the bad debt crisis. Only 17% of cases admitted to court had produced a resolution plan by December, according to data released by the insolvency commission.
However, part of the impasse was broken with the Supreme Court’s decision in November to clear the way for ArcelorMittal SA to take over Essar Steel India Ltd for $5.9 billion. lenders have equal rights to the proceeds.
After the judgment, “people now know that we can take a call on the underlying credit. I don’t have to worry about where I stay in the structure,” Chawla said.
Deutsche Bank holds 28.3 billion rupees ($396 million) of Essar Steel loans, purchased from IDBI Bank Ltd. and Bank of Baroda, according to documents filed by the steel company’s court-appointed bankruptcy administrator.
Among its other troubled asset plans, Deutsche Bank has sought to buy bad loans granted to Jindal India Thermal, GVK’s power station in Punjab, and Coastal Energen, people familiar with the matter said.
However, a rule that requires foreigners to go through a so-called asset reconstruction company for out-of-court bankruptcies may increase the cost and time of such transactions, Chawla said.
Chawla, who joined Deutsche Bank for a third stint in 2014, said he added three members to his team last year, bringing the total to 11.
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