RBI unearths Rs 47K cr more bad loans

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New Delhi: What can be described as a “new twist” of the multi-crore bank scam in India, the Reserve Bank of India (RBI) recently unearthed that bad loans at the country’s five biggest state-run banks is about Rs 47,000 crore more than what the lenders had assessed.
Audits undertaken by the RBI for the fiscal ended March 31, 2017, exposed the discrepancies, triggering huge losses as the banks increased provisions. On adding IDBI Bank, which is not among the biggest banks, but got the largest chunk of a public bailout, the figure now goes up to over Rs 56,000 crore, Bloomberg reported.
Considering that 50 per cent of India’s 22 state-run banks are already under the RBI’s strict Prompt Corrective Action (PCA) programme that limits lending and expansion, hidden bad debt is a massive blow to the sector. It is feared that asset quality may deteriorate further as tighter regulations are implemented this year and pressure rises in the vital power sector.
According to former RBI deputy governor SS Mundra, a few of the banks undergoing PCA may even find it hard to survive. This will, in turn, increase reliance on loan recoveries from the country’s new bankruptcy process, which reported its first major success May, but is running behind schedule amid multiple legal and logistical challenges.
Shares of Bank of India, which became the latest to report the discrepancy, slumped 4.4 per cent as of 1 pm Tuesday. Loss tripled to Rs 3,970 crore for the quarter ended March 31, 2018, from Rs 1,050 crore a year earlier, the lender told the stock exchange late Monday.
Bank of India now needs a “favorable outcome” – loan recoveries of about 50 per cent – from the bankruptcy process, Ravikant Bhat, an analyst at Emkay Global Financial Services, wrote in a note to clients. With conflicting reports on likely outcomes for the so-called ‘dirty dozen’ large delinquent firms undergoing the process, “our estimates continue to factor in higher haircuts,” he said.