In the last few weeks, international funds showed lot of interest to participate in buying NPAs of banks. Indian banks still have close to Rs.11,00,000 crore ($162 bn) of NPAs in their books. Not all these are bad loans and some may be substantially recoverable if cash flows are resolved. In this context, the markets appear to be quite excited about this new idea called distress funds or vulture funds.

Internationally, distressed funds are also called vulture funds because like the vulture that feeds on the dead, the vulture funds also feed on distressed assets at huge discounts. Subsequently, they look to hive off this portfolio at a neat profit. These vulture funds have different models like equity participation model, leveraged models etc. The vulture funds allow bank and shareholders to monetize locked up assets. These vulture funds have a role in that they help banks to put a value to their assets and also to quickly monetize the same.