Daily Management Review

Bad debts of Indian banks reached a record


The bad debts of Indian banks in late June reached a record 9.5 trillion rupees ($ 145.56 billion). This is reported by Reuters with reference to unpublished data, which indicate that Asia's third largest economy is far from solving the problem of overdue loans.

As noted by Reuters, an overview of the Reserve Bank of India shows that the total volume of problem loans in Indian banks, including non-repayable and restructured loans, increased by 4.5% in January-June. In the previous six months, the indicator grew by 5.8%.

While banks remain the main source of financing for Indian companies, the problem of bad debts negatively affects the profits of banks and limits new loans, especially for small firms, while the economy that depends on them is stalling.

The economy of India in April-June grew at the slowest pace in three years. This may cause concern of the government of Prime Minister Narendra Modi, who will be elected in 2019. Modi promised to create millions of new jobs before that time.

Banks need higher reserves, given that more non-payers can be declared bankrupt. The profit of banks is likely to continue to decline in connection with the proposed new rules, which should prompt commercial banks to lower rates after the central bank.

The bulk of problem loans falls on state-owned banks and is associated with lending to large conglomerates, especially in the steel industry and infrastructure.

However, analysts say that the growth of bad debts among small firms raises fears and hampers the growth due to new loans.

According to the Reserve Bank of India, the share of bad debts in the total amount of loans reached 12.6% at the end of June. This is the maximum for 15 years.

source: reuters.com

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