Lack of transparency in certain sectors, and a weak legal system are hurting the prospects of foreign investors in India, a top official from Dutch development bank FMO said.
FMO has deployed over $700 million in debt and equity, mainly in private firms in India, and the market accounts for over 7 per cent of its portfolio.
“Out of our non-performing assets, 11 per cent are in India,” Jurgen Rigterink, chief risk and finance officer, FMO told The Hindu on the sidelines of the VCCircle India Limited Partners Summit 2016. “You can see that we are not actually as successful here as we are in many other markets.”
Lack of easier norms for exiting ventures, and absence of a strong bankruptcy code have been one of the major hurdles for both foreign and domestic investors. The government is looking at introducing a new bankruptcy code.
“Those kind of regulations are good and important for foreign investors. However, their enforcement is key. You can enforce them with an effective and efficient legal system. We see that the legal system is not working as it should,” Mr Rigterink said.
He cited the instance of a portfolio company (which he did not name), which was going through a restructuring, and pointed out to him that FMO cannot tap the legal system as it will take many years to resolve the issue. “People who get rich are the lawyers. The legal system also needs to be reformed.”
Mr Rigterink said that one of the main challenges for foreign lenders is that they do not get benefit from the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, which allows for the enforcement of security by some secured creditors without the intervention of courts.
FMO’s portfolio in financial sectors including banks, leasing companies, micro-finance institutions, and energy-related investments have been doing well, he said, adding the major stress has been in the real estate sector.
“We did not have enough knowledge about the real estate sector here, and there is lack of transparency,” Mr Rigterink said. The government passed the long-pending Real Estate Bill on Thursday, with an aim to enhance transparency, and give buyers more protection.
