Mumbai, Oct 10: The quantum of bad loans with Indian banks soared to a record Rs9.5 trillion at the end of June, according to unpublished data accessed by a news agency. The data suggests Asia’s third-largest economy is nowhere near bringing its bad debt problems under control.
Reserve Bank of India (RBI) data accessed through right-to-information requests have shown that the total stressed loans — including non-performing and restructured or rolled over loans — rose 4.5 per cent in the six months till the end of June. They had risen by 5.8 per cent in the previous six months.
Bad debt has plagued India’s banks, the main source of funding for companies in the country, eating into their profits and choking credit offtake even as the economy has stalled.
As more defaulters are being pushed into bankruptcy the banks are having to take higher provisions and margins are likely to be squeezed further by proposed new rules to encourage commercial banks to pass on central bank interest rate cuts.
Public Sector Banks hold the bulk of bad loans as they count large conglomerates, especially in steel and infrastructure sectors, among their borrowers. According to analysts, the picture is also not rosy with small firms as well as retail borrowing, and there is little to encourage new loans to help fuel growth.
“On the corporate side, we think it’s a recognition cycle which is nearing an end,” Reuters has quoted Alka Anbarasu, senior analyst at Moody’s Investor Service, as saying with reference to more bad loans being recognized as such, as banks come under pressure from the RBI and other regulators. “But it’s really those data points beyond corporates that are causing some worry.”
Stressed loans as a percentage of total loans reached 12.6 percent by June end, according to RBI data, the highest level in at least 15 years.
Part of the issue for banks and the government is a strict provisioning regime: the RBI wants banks to provide for at least 50 per cent of the secured loans to companies taken to bankruptcy proceedings, and 100 percent for the unsecured part.
A dozen of the biggest such cases account for nearly 1.78 trillion rupees, or a quarter of total non-performing assets.
For those companies, banks will need to provide 180 billion rupees on top of existing provisions, according to July estimates from India Ratings and Research, the local affiliate of Fitch Ratings.
More than 20 other sizeable companies are at risk of being taken to bankruptcy court. Bankers say these and other pressures — including rising government bond yields that forced banks to post mark-to-market losses — have added to the squeeze, and hit new loans.
According to RBI data, new loans grew at just about 5 percent in the year to March, the lowest growth rate in more than six decades. Several banks have already cut back their loan books to conserve capital. A senior policymaker, who requested anonymity as the discussions are not public, said the government would have to help to sufficiently capitalize the banks.
Fitch Ratings estimates Indian banks will need $65 billion of additional capital by March 2019 to meet Basel III global banking rules. Moody’s expects the top 11 state lenders alone will need nearly $15 billion. The government has just $3 billion left in its budget for bank recapitalization.
SBI chairman creates special division
New Delhi: Facing a historic level of bad loans, the new State Bank chairman Rajnish Kumar has created a special division headed by an MD to tackle the issue as part of his restructuring of the top and mid-level management to better run the nation’s largest lender. Kumar, who assumed office as the 25th chairman of SBI last Saturday for a three-year tenor, has reshuffled various business verticals headed by wholetime directors. “It has been decided by the competent authority to restructure the top organisational set-up of the bank for effective control and oversight of the enlarged domestic business and operations, post-mergers of associate banks, better synergy and also to impart greater impetus to recovery of NPAs and resolution of stressed assets,” Kumar said in an internal communication on Oct 7. To have a special focus on the mountain of non-performing assets (NPAs), which has hit double digits in Q1, Kumar has created a new division under the label of Stressed Assets Resolution Group headed by a managing director.