A day laborers walks through the Kolkata Dock System (KDS), part of the Kolkata Port Trust (KoPT), in Kolkata. (Photographer: Sanjit Das/Bloomberg)

Ex-Goldman Banker Looks to Fill India Lending Gap After IL&FS

(Bloomberg) -- A shadow bank’s defaults have pushed up borrowing costs in India and made it harder for smaller companies to get funding. Alternative lenders including a fund run by an ex-Goldman Sachs Group Inc. banker think they can help.

Indian firms that are too small to borrow from banks have typically relied on loans from non-banking financial companies, which raise money via commercial paper. But interest rates have shot up and a cash shortage has worsened after defaults by Infrastructure Leasing & Financial Services Ltd. That’s provided an opening for alternative lenders.

One such fund is SC Credit Fund, which lends to small- and mid-sized companies at 16 percent to 18 percent. It has raised about $75 million from investors, according to Siddharth Bhargava, CIO of India credit for Samena Capital, which jointly manages the fund with advisory firm Catalyst. He previously headed credit trading and investing in India for Goldman Sachs.

“We are seeing more alternative lending opportunities,” said Bhargava, who has more than 15 years credit investing experience.

The ability of Indian banks to lend has been crimped by the world’s worst bad-loan ratios after Italy, attracting funds from Oaktree Capital Group LLC to Varde Partners Inc. The IL&FS debacle has also made things tough at non-bank finance companies, which accounted for 17 percent of the nation’s credit market in 2017. Those firms are finding it increasingly difficult to borrow, and that will become an “additional headwind” for growth in India, according to Australia & New Zealand Banking Group Ltd.

Alternative lenders are stepping in to fill the gap. But there are risks. One is that offshore investors are vulnerable to fluctuations in the rupee. While the currency’s slump hasn’t really affected onshore clients, which make up about 60 percent of SC Credit Fund’s investors, it’s a concern for offshore investors, according to Bhargava.

The fund’s investors include family offices and pension funds and it sees “rising demand” from wealthy investors for alternative investments, he said. Many such investors have had a “great run” on bond mutual funds but with the recent defaults and rising rates, such funds look less attractive, Bhargava added.

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