Electronic Trading of Distressed Bank Loans

Abstract

An electronic stock exchange is a market place where buyers and sellers of financial instruments conclude trades without physical contact. In India, we have electronic exchanges for currencies, commodities, equity, debt, etc. This article looks at the need for and importance of an electronic exchange for distressed bank loans and outlines the benefits that banks and financial institutions can realize by using the electronic trading platform for distressed loan sales. RBI issued detailed procedural guidelines in July, 2005 for sale of distressed loans to banks and ARCs (Asset Reconstruction Companies). It is observed that the performance of banks on the loan sales front is very tardy. The reasons are not far to seek. Currently, all loan sale deals are done off line and the entire loan sales cycle take about 45 to 60 days on an average. Introduction of electronic trading would substantially bring down the transaction processing time to less than a week.