INDIAN lenders are struggling to find new owners for unprofitable steel and infrastructure companies they took over under a debt-for-equity swap, a warning sign for China, which is launching a similar program.

    Indian banks have either taken over or are in the process of seizing majority control in 18 firms with a combined debt of about US$15 billion, under a central bank plan that allows them to swap the companies’ debt for equity and freeze nonperforming loans, brokerage Religare Capital Markets estimates.

    The Reserve Bank of India’s Strategic Debt Restructuring (SDR) swap plan, aimed at reducing a US$121 billion corporate bad debt mountain, envisages banks passing on control to a new owner within an 18-month grace period.

    Buyers, however, are not flocking in.

    Lenders to Electrosteel Steels, the first test case in the program, were dealt with a blow earlier in April as the only investor interested in a stake in the company, London-headquartered securities brokerage First International Group Plc., withdrew its interest, the brokerage said.

    That followed a collapse of talks with prospective buyer Tata Steel, which had wanted a sharp discount. A new suitor, the Dalmia business family, has shown interest, according to bankers, but there is no offer yet.

    In the meantime, the banks have classified Electrosteel’s US$1.7 billion debt as nonperforming, an admission the plan is not working. Both Electrosteel and Tata Steel declined comment.

    Chinese lenders are facing rising pressures from slowing economic growth, with nonperforming loans reaching a 10-year high of 1.27 trillion yuan (US$196 billion) at the end of 2015.

    “The difficulty faced by Indian banks in finding new owners highlights the challenges that Chinese banks might also face,” said Chua Han Teng, Asia analyst at Fitch affiliate BMI Research.

    “Chinese banks will likely seek to proceed cautiously with the proposed debt-equity swap plan, and will be extremely selective given that it is not the expertise of banks to manage these highly-indebted firms.” (SD-Agencies)