Bengal chief minister Buddhadeb Bhattacharjee with IT minister Manab Mukherjee, Alan W. Jebson (third from right), COO of HSBC Holdings, Michael Arthur (second from right), British high commissioner in India, and Malcolm H. Wagget, COO of HSBC global resourcing (South Asia), in Calcutta on Tuesday. Picture by Kishor Roy Chowdhury

Calcutta, Nov. 22: Buoyed by the government’s decision to allow 49 per cent foreign direct investment in asset reconstruction companies, Hongkong and Shanghai Banking Corporation Limited (HSBC) is actively exploring the potential of this business segment.

Asset reconstruction companies buy stressed assets from banks and financial institutions and try to turn them around.

HSBC is the second bank from the UK that is showing interest in acquiring sticky assets of the Indian banking sector. The UK-based Standard Chartered is already exploring the possibility of setting up special purpose vehicles in collaboration with state-owned banks to acquire bad loans.

“The regulations have just come in. I have asked the officials of our asset management company to look into the regulations and evaluate whether there is any opportunity in the asset reconstruction business,” HSBC group general manager and chief executive officer Niall S.K. Booker said.

There are nine subsidiaries of HSBC in India, including HSBC Asset Management Company, which manages eight schemes under the HSBC mutual fund umbrella.

Booker refused to comment further on the issue. Banking industry sources, however, said HSBC might float an outfit on its own or may join domestic banks and financial institutions, which will float asset reconstruction companies.

HSBC has over 9,700 offices in 77 countries and territories. It is well acquainted with international junk bond markets and, therefore, will not face any problem in handling sticky assets in India, bank analysts feel.

The government’s move is aimed at imparting requisite liquidity to the business of asset reconstruction in the form of FDI by foreign banks. It could also lead to a spurt in the number of asset reconstruction companies in the country, where the banking sector is saddled with NPAs in excess of Rs 60,000 crore.

A large number of corporate debt restructuring proposals, coupled with buoyancy in major industries like steel, textiles and sugar, have helped reduce bank NPAs. Lack of financial strength with asset reconstruction companies has, however, been a cause for concern.

According to finance ministry guidelines, the Foreign Investment Promotion Board (FIPB) will now consider proposals to infuse FDI in asset reconstruction companies registered with the Reserve Bank. However, foreign institutional investment will continue to be barred.

“India needs quite a number of asset reconstruction companies to handle the sticky assets. The only operating firm is Arcil,” the bankers added.

Board meet in capital

The 19-member global board of HSBC will meet in India for the first time on November 25 to review the country’s operations and finalise its future investment plans here. The team, led by HSBC group chairman John Bond, will meet in New Delhi to take stock of the investment climate in India.