SBI, Brookfield in JV to invest in stressed assets

State Bank of India (SBI) and Brookfield Asset Management Inc will form a joint venture (JV) to drive investment into stressed assets. While Brookfield has committed Rs 7,000 crore, India's largest lender would chip in with Rs 350 crore as initial investment. The latter would also commit to earmarking five per cent of its total investments for stressed assets.

SBI has said it has signed a pact with Brookfield to collaborate on investments as part of an ongoing stress asset resolution process. The proposed JV will independently evaluate and invest in various stressed assets, and will rely on Brookfield's operational expertise to manage recapitalised businesses.

The JV, which will be registered with the Securities and Exchange Board of India as an alternate investment fund, will be a sector-agnostic fund with a life span of seven years. However, with substantial exposure to infrastructure-sector projects, some extension of fund life is not ruled out, says a senior SBI executive. At a later stage, the JV might seek participation from other lenders in the identified assets. The JV will independently evaluate and invest in various stressed assets, and will rely upon Brookfield's operational expertise to manage recapitalised businesses. According to SBI Chairman Arundhati Bhattacharya, the investment approach will be acceptable to both lenders and borrowers in cases where the promoters are not able to infuse funds and lenders are reluctant to take additional exposure.

Anuj Ranjan, head of Brookfield India, said this provides an opportunity to continue to invest in the long-term India story. It will further expand Brookfield's private equity platform in the country. According to rating agency ICRA, significant recognition of non-performing assets (NPAs) happened in the second half of FY16 on conclusion of asset quality review by the Reserve Bank of India. This led to an increase in gross NPAs to 7.7 per cent as of March 2016 compared with 4.8 per cent in September 2015.

With a view to reducing stress on books, lenders are pursuing highly indebted corporates to divest, bring new investors for sale of assets to repay loans.

State Bank of India