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Foreign capital helps ease India’s credit drought

WITH THE economy battered by coronavirus, risk capital has dried up in India. In the past six months assets in credit-focused mutual funds, which play a crucial role as buyers forAA- to A-rated bonds, have declined from $13bn to $4bn. Lending by commercial banks, burdened by dud loans even before the pandemic, has withered. Thankfully, for some companies this domestic dry spell is being offset by a stream of foreign capital.

Reliance, a telecoms and energy giant, is a glitzy example of overseas equity investment made on the premise of growth. But a quieter wave of capital is seeking out different sorts of assets, serving to stabilise local companies while offering foreign investors high returns. As a result, many of the world’s largest insurers, private-equity (PE) firms and pension and sovereign-wealth funds have become influential.

Such inflows have been a boon for India’s financial institutions. Edelweiss, a big lender and asset manager, had already been suffering after the collapse of one non-bank, IL&FS, tightened domestic credit for the others. Covid-19 only made matters worse. But over the summer Edelweiss has struck a series of deals, selling, for instance, its corporate loans to Singaporean and American asset managers, and a majority stake in its wealth-management division to a Hong Kong-based PE firm. Its...

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