In a rare move, top bad-debt buyer Edelweiss eyes loans that have gone sour

India’s massive pile of bad business debt has kept asset-reconstruction companies busy in recent years.

But as signs emerge that the supply of such assets may be leveling off, the nation’s largest buyer of bad loans is considering a rare move to start purchasing soured consumer debt. Edelweiss Asset Reconstruction Co. is setting up a team for that and seeks to start purchases in 2019, Chief Executive Officer Raj Kumar Bansal said in an interview.

“Corporate non-performing assets have plateaued,” Bansal said. “There will, therefore, be more business opportunities for purchases of retail loans. We will start with buying mortgage loans first, and then loans against property and other secured loans.”

While India’s soured debt is still among the biggest in the world, fresh bad loan formation for the top five banks has leveled off since earlier this year after the regulator’s push to clean up lender balance sheets. At the same time, individual borrowers are increasingly missing payments on consumer loans amid weak job creation.
 

Bad debt opportunities may expand ahead. Banks have been channeling increasing amounts of credit to retail consumers after defaults among corporate borrowers eroded their profitability.

Housing and automobile loans led an acceleration in personal loans, which “ran above trend” in the year to March 2018, according to a central bank report. Outstanding consumer loans grew almost 18 percent over a year earlier as of end-March.

Edelweiss is setting up the 20-member team to buy and recover soured consumer credit, Bansal said.

The firm will begin by buying soured assets, mostly backed by collateral. It will later turn the focus on unsecured loans like education and credit cards, Bansal said.