Indian banks are in troubled waters. Mounting non-performing assets might derail the entire Indian financial system if due care is not taken immediately. The Indian government has recently taken the ordinance route to empower the Reserve Bank of India to enable banks to more quickly recover non-performing assets from loan defaulters. Here is the catch. Public Sector Banks are readily willing to transfer NP assets to Asset Reconstruction Companies at very cheaper price. Countries with low interest regimes can jump into this huge opportunity to make a decent profit. It could be win-win situation for the following reasons:
Many defaulters tell that it’s because of the high interest burden coupled with economic slow down world wide that they found difficult to repay the loan. Now the world is witnessing growth and put the slow down behind. It means an incentive of low interest might induce the defaulters to come clean of their balance sheets. Indian banks cannot afford low interest rate in the present Indian financial structure. Therefore, it is an opportunity for foreign banks.