Deutsche Bank AG DB has planned to set up its asset reconstruction company (“ARC”) in India as it seeks to make profits by buying and reorganizing non-performing credit, per Bloomberg. This came amid India’s changing regulations in connection with the clean-up of bad debt.
India’s non-performing loan ratio is the worst in the world. This move by Deutsche Bank comes as the current rules in this country do not allow overseas investors to purchase soured loans from domestic lenders directly.
Hence, the bank thinks that having its ARC in India will be beneficial.
Notably, the parliament in India passed a law in 2002, which aimed at helping banks clean their balance sheets by selling bad loans. Since then, more than 29 ARCs have been set up in this nation.
However, until 2016, when Prime Minister Narendra Modi’s government twisted the rules a little, allowing overseas investors to fully own ARCs in India, buying of bad loans would occur only through tie-ups with local firms.
Currently, there is speculation that eventually authorities will allow foreign investors to buy soured debt in India without the requirement of making tie-ups with local units. Hence, some of these investors have taken a back seat and are not considering setting up their ARCs in India currently.
Nevertheless, others have already started setting up their ARCs in the nation. Lone Star Funds has set up its ARC in India already while KKR & Co. applied for an ARC permit.
Notably, per people familiar with the matter, Bank of America BAC is considering setting up its ARC in India, though nothing has been finalized yet.
Deutsche Bank’s shares have gained 6.1% over the past three months, underperforming 11% growth recorded by the industry it belongs to. Currently, the stock carries a Zacks Rank #3 (Hold).
A couple of better-ranked stocks from the same space are Banco de Chile BCH and Itaú Unibanco Holding S.A. ITUB. These stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Banco de Chile’s Zacks Consensus Estimate for current-year earnings has remained unchanged over the past 30 days. The stock has gained nearly 5.1% in the past six months.
Over the past 30 days, Itaú Unibanco’s earnings estimates have remained unchanged. The stock has gained around 36.7% in the past six months.
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