Mubasher: A review of the Reserve Bank of India’s (RBI) data showed banks' total stressed loans - including non-performing and restructured or rolled over loans - rose 4.5% in the first half of 2017 to INR 9.5 trillion ($145.56 billion), Reuters reported Wednesday citing unpublished data it had obtained.
These figures come after “sour loans” rose 5.8% in between April and September.
Stressed loans reached 12.6% of total loans at end-June, the highest level in at least 15 years, according to Reuters, citing RBI data.
“While banks remain the main source of funding for India's companies, the stubborn bad debt problem has eaten into bank profits and choked off new lending, especially to smaller firms,” Reuters said.
This comes at a time when India grew at its slowest pace in three years in the April-June period. It is unlikely that India’s bad debt problem will come under control soon, the news agency added.
This represents a concern for the prime minister Narendra Modi, who faces elections in 2019 and has pledged to create millions of new jobs ahead of the elections, Reuters added.
Banks would take higher provisions to account for more defaulters, as margins are likely to be squeezed further by proposed new rules to encourage commercial banks to pass on central bank interest rate reductions.
Most of India's sour loans are in state banks and stem from lending to large conglomerates, particularly those in the steel and infrastructure industries. However, analysts also note rising bad loans among smaller firms and in retail borrowing.
Analysts forecast “weak quarters ahead for banks before profitability picks up”, adding that “the months ahead would be strained,” according to the news agency.