State bank of India
Bad loans at India’s five biggest state-run banks have made them less appealing | Bloomberg
Text Size:

Hidden bad debt is a blow to the sector given that half of India’s 22 government-controlled banks are already under the Reserve Bank of India’s strict Prompt Corrective Action program that restricts lending and expansion.

Bad loans at India’s five biggest state-run banks were about 456.8 billion rupees ($6.8 billion) more than the lenders had assessed.

Audits by the regulator for the year ended March 31, 2017, revealed the discrepancies, triggering large losses as the banks increased provisions. If you add IDBI Bank Ltd., which doesn’t feature among the biggest but got the largest chunk of a public bailout, the figure rises to about $8.3 billion.

Hidden bad debt is a blow to the sector given that half of India’s 22 government-controlled banks are already under the Reserve Bank of India’s strict Prompt Corrective Action program that restricts lending and expansion. Asset quality may worsen as tighter regulations kick in this year and stress rises in the crucial power sector.

India’s power sector is emerging as a key risk for the nation’s banks: 75GW Power Projects  Risk Bankruptcy on New Norms: Lobby Power Ministry Seeks  Relaxed Rules for Stressed Assets in Sector India’s REC  Preparing Plan for Stressed Power Assets: Chairman

A few of the banks undergoing PCA may find it hard to survive, the RBI’s former Deputy Governor SS Mundra told BloombergQuint. That increases reliance on loan recoveries from India’s new bankruptcy process, which reported its first big success this month but is running behind schedule amid multiple legal and logistical challenges.

Shares of Bank of India, which became the latest to report the divergence, slumped 5.7 percent as of 9:30 a.m. in Mumbai on Tuesday. Loss tripled to 39.7 billion rupees for the quarter ended March 31, 2018, from 10.5 billion rupees a year earlier, the lender told the stock exchange late on Monday.

Bank of India now needs a “favorable outcome” — loan recoveries of about 50 percent — from the bankruptcy process, Ravikant Bhat, an analyst at Emkay Global Financial Services Ltd., 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.

BANK DIVERGENCE (Billion rupees) State Bank of India 232.4 Punjab National Bank 22.1 Bank of Baroda 29.2 Canara Bank 32.5 Bank of India 140.6 IDBI Bank 102.8. -Bloomberg

ThePrint is now on Telegram. For the best reports & opinion on politics, governance and more, subscribe to ThePrint on Telegram.

Subscribe to our YouTube channel.

Share Your Views

LEAVE A REPLY

Please enter your comment!
Please enter your name here