India moves to deepen junk debt market by allowing bad loan securitisation
The Reserve Bank of India (RBI) said last week it would now permit market-determined securitisation of stressed assets, besides those loans where repayments were on track.
The volume of securitised standard loans jumped 25% to 2.3 trillion rupees ($26.74 billion) in 2024-25, data from India Ratings and Research showed.
Pooling together stressed retail and personal loans will allow banks to lighten their balance sheet and give investors high-yield investment options.
It will also draw new investors, broadening the market and giving it more liquidity and depth, said Hari Hara Mishra, CEO of the Association of ARCs (Asset Reconstruction Companies) in India.
The debilitating corporate bad-loan cycle in the previous decade took years to clean up and pushed banks to shift focus to the unsecured retail segment, resulting in higher delinquencies. Overall, the sector's bad loans ratio is expected to rise to 3% by March 2026 from a 12-year low of 2.6% in September.
High-yield investors, however, are interested in both stressed corporate loans and similar small-ticket loans, said Nachiket Naik, head of private credit at Axis Asset Management.
Personal loans and credit card debt accounted for approximately 52% of fresh bad loans in banks' retail portfolios between April and September last year, RBI data showed.
So far, the lack of options has forced banks to sell these loans to ARCs at a 90%-95% haircut.
Now, banks not only get the option of securitising these loans but the lure of higher returns from such issues will also attract investors, including FPIs and private credit firms.
The expected yield of such a pool of stressed assets will be higher than that of a junk or high-yielding bond and akin to what a distressed fund expects from its investments, said Ajit Velonie, senior director at Crisil Ratings.
U.S. and European distressed debt funds are drawn to high-yield opportunities in emerging markets such as India, said Sankar Chakraborti, CEO of Acuite Ratings and Research.
However, there are some challenges, including the pricing of such securities.
"The price determination of NPA securitization deals is influenced by various granular factors such as asset quality, recovery rate, historical probability of defaults of the underlying asset classes and investor sentiments," noted Manisha Shroff, partner at law firm Khaitan & Co.
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Letting Nicolas Kuhn leave Celtic is a major risk and I'll hold off on the herograms until they prove me wrong
Nicolas Kuhn out of the door for a fortune. That looks like an outstanding piece of financial business again by Celtic. Hands up, I didn't think Celtic would get such an impressive fee for the winger. I wasn't convinced any club would be willing to fork out as much, but Como clearly believe he's worth that amount and that's all that matters. But, regardless of the circumstances, I'd prefer to reserve my full judgement on this matter until after the Champions League qualifier is over. Perhaps Kuhn 's head was turned, perhaps Celtic think the ready-made replacement is there already in Benjamin Nygren. But, whatever the reasoning, I'd say the German leaving at this precise moment represents a risk and it's now down to Celtic to disprove that notion. If Kuhn's exit doesn't damage the route back to the section-phase of the elite tournament, fine, Then I'll start dishing out the plaudits. On figures alone, Celtic will have done terrifically well to get a profit of around £14 million on a guy who was there for just 18 months and performed at consistently high level for a third of that. say six or seven of those months? Maybe that'll be seen as harsh, but that's how I see it. Kuhn deserved his time to settle in during the first six months. Returning at the beginning of last season. he was dynamite. With a strong pre-season under his belt, the wide man was fabulous both at domestic and European and continued that through until scoring against Bayern Munich in his homeland. But after that? He fell off a cliff and a couple of times I can recall he was hooked at half-time by Brendan Rodgers after insipid first-half showings. The Rangers game at Celtic Park being the glaring example of that when Barry Ferguson's won. So, on the face of it, based on the figures, it's another wonderful example of the Celtic transfer model working a dream. However, the profit is a drop in the ocean to the riches available at Europe's highest level and, if this move backfires, the club will cop it. I have to say, I cannot believe for a solitary second that Brendan Rodgers isn't convinced he'll be replaced properly and in timely fashion. The Celtic manager couldn't hide his enthusiasm for getting back into the top-level of Europe last season and making progress and the motivation of potentially taking that further. Rodgers won't be allowing that quest to be damaged, so you'd have to think succession plans are in place. Mind you, I thought that in January when Kyogo Furuhashi was sold and the boss made it abundantly clear he was seeking a replacement. The fact one didn't arrive before the end of the window and before the knockout game against Bayern would have Celtic fans concerned. Truth of the matter is it is just another piece in the new jigsaw that Rodgers is going to have to find and fast. Nygren has arrived and it might be Rodgers believes the Swede's ready to fill the void instantly, but that's a big role to fill immediately. It's no guarantee, as Kuhn showed, that you hit the ground running as a new signing and he now has to settle quickly. The prospect of going into the qualifier weaker than ending the previous season is a dangerous one. There's time prior before that, of course, but I'm seeing various areas that need to be addressed. Kyogo's permanent replacement needs to be at Celtic Park fairly soon. Daizen Maeda did a superb job playing as a central striker last season when his countryman left, but surely that's not the long-term solution and the fact he was selected ahead of Adam Idah so often would suggest to me the Irishman also isn't seen as the answer. Callum Osmand is an interesting arrival, but that central striker with experience is still needed because, as much as he delivered up front, Maeda still looks to me like wide is his best position. With Kuhn away and Jota still out for a considerable period of time, Celtic need the Japanese out on the flank inflicting his damage. It's hard to know the potential needs in the middle of the park with much depending on the future of Reo Hatate and, defensively, the talk around Cameron Carter-Vickers and an injury issue offers food for thought. He also faces a tricky task to replace Greg Taylor. Kieran Tierney is an upgrade, I don't think it's merely a question one-in and one-out. Taylor didn't just play the inverted role. He mastered it. In my eyes, Tierney plays the left-back role in a more-orthodox fashion. Much of the dominance that Rodgers' team is able to impart on matches comes from their ability to create overloads and Taylor was often key to that in the midfield. You don't need both full-backs coming infield to do it, just the one. But that's where Celtic had nice balance because Alistair Johnston has always looked more a Tierney than a Taylor. I'll be fascinated to see what he does in terms of that balance and Kuhn's departure brings another issue. Like I said, if Celtic don't suffer on the park, it's brilliant business. If they do, it could be profit and loss at the same time.
