Credit card debt as a percentage of the total is tiny, but it is expensive credit, and default is usually a sign that personal finances are in trouble.
The government's approach has been to throw money at the problem and mandate reform from above. The reform never happens, or it does not make a difference.
Peter Manuel's ‘Cassette Culture’ showed the booming Bhakti music during the '80s and '90s when Anoop Jalota, Gulshan Kumar achieved success by singing the sanitised Bhajans.
Economists say there are weaknesses in India’s GDP data. But statisticians claim the accusations are based on flawed understanding, saying while GDP has problems, the economists are looking in the wrong places.
We need to first rein in the Supreme court. If the court indeed gets into interest waiver or anything similar because the situation is bad, it will set a precedent. Tomorrow a flood victim will go to the supreme court ask for a waiver…then it will be someone who has lost an earning family member…i am highly disappointed in the RBI and govt because both couldn’t stand up to the supreme court. The ugly overreach needs to be corrected and the supreme court should be shown its place… dealing with law and not economics. This precedent will add a lot of uncertainty.
This is a well written and very interesting article. The Indian banking system faces toughest time after the 2008 global financial meltdown. Yes, the warning signals of spread of the NPA virus in the lending to the retail sector are quite visible. We should not have expected otherwise after the impact of the Covid-19 pandemic. But the story doesn’t end here. In April 2020, Tamal Bandyopadhyay wrote in his column in the Business Standard. :“In value terms, of the Rs88,000 crore micro loans, Rs19,000 crore or 21.59 per cent is stressed. In small loans, out of Rs12.35 trillion, Rs40,000 crore or 3.24 per cent is stressed. Of the Rs4.51 trillion medium loans, Rs15,000 crore or 3.33 per cent is stressed. The least stress is in the large loans – 2.57 per cent or Rs1.2 trillion, out of Rs46.72 trillion .Overall, Rs1.94 trillion or 3.01 per cent of the commercial loans is showing incipient stress. Let’s focus on the retail loans — mortgages, auto and two-wheeler loans, loans to buy consumer durables, personal loans, education loans, credit cards, et al. Over the past few years, the amount of consumer loans, personal loans and credit cards have been swelling, signaling rise in consumption. There are 236 million such live loans and 14.8 million of them are stressed. The value of the entire retail portfolio in the system is Rs53 trillion and the stress is far more than the commercial loans — Rs4.1 trillion or 7.74 per cent.” Should we expect a flood of NPAs in the retail sector after the moratorium is lifted? But then what choices do the Indian Banks have? Corporate lending has been a disaster- it is a the sad saga of massive accumulation of NPAs and consequent write offs which had a debilitating impact on the banking industry, more particularly the government owned banks and still the government is pushing these banks to lend more. However, lending to the corporate sector has to be selective and cautious. There are many large groups who are over-leveraged and burdened with mounting debt. The RBI Prudential Exposure Norms stipulate restrictions on the bank-wise exposure to industrial groups; but what is the control on the overall exposure of the entire banking system to an industrial group? Does RBI monitor this? Let us take an example of the Adani group.. The group has total burden of Rs. 1.3 lakh crore and the group is still expanding and borrowing more. The group’s position upto 2018 was reported as under :” The Adani Group’s six listed companies, which account for almost all of its Rs 77,000 crore turnover, had operating profits of Rs 20,141 crore in 2017-’18. After accounting for interest payments, tax, depreciation and other charges, their combined net profit stands at Rs 3,455.34 crore.” The current position is not known to me. I have no malice towards them. But if the exposure becomes NPA what would happen to India’s banking system?
So, what is the way out? Deposits are growing at rapid pace but lending opportunities are restricted. The REPO window gives a measly return of just 3.5%. The options are obviously limited . Needles to add, lending is the dharma for banks. The surest way of incurring losses is to stop lending. But extreme caution and selective lending has to be exercised while lending to the corporate sector. Retail sector window cannot be blocked, as it offers only viable hope to Indian banks.
In the end, I think that the grouse against government owned banks is ill-founded. Most of them have very comfortable Provision coverage Ratios and the NPA loss has now been almost been covered. Here is the data of big six of PSU banks :IDBI Bank (95.96%), SBI (83.62%), BoB (83.3%), PNB (77.79%), Canara Bank (75.86%) and Union Bank (73.6%). Thus, we should be concerned not about PSU Banks but about private sector banks. The Yes Bank saga is quite fresh in mind. Laxmi Vilas Bank and Dhanlaxmi Banks are in hot waters. If they fail, who would protect their depositors? The failed PMC Bank had lent more than 70% of its credit to one group and it failed due to fraud and cheating. Now, which government owned bank has NPAs of around 70%?
We need to first rein in the Supreme court. If the court indeed gets into interest waiver or anything similar because the situation is bad, it will set a precedent. Tomorrow a flood victim will go to the supreme court ask for a waiver…then it will be someone who has lost an earning family member…i am highly disappointed in the RBI and govt because both couldn’t stand up to the supreme court. The ugly overreach needs to be corrected and the supreme court should be shown its place… dealing with law and not economics. This precedent will add a lot of uncertainty.
This is a well written and very interesting article. The Indian banking system faces toughest time after the 2008 global financial meltdown. Yes, the warning signals of spread of the NPA virus in the lending to the retail sector are quite visible. We should not have expected otherwise after the impact of the Covid-19 pandemic. But the story doesn’t end here. In April 2020, Tamal Bandyopadhyay wrote in his column in the Business Standard. :“In value terms, of the Rs88,000 crore micro loans, Rs19,000 crore or 21.59 per cent is stressed. In small loans, out of Rs12.35 trillion, Rs40,000 crore or 3.24 per cent is stressed. Of the Rs4.51 trillion medium loans, Rs15,000 crore or 3.33 per cent is stressed. The least stress is in the large loans – 2.57 per cent or Rs1.2 trillion, out of Rs46.72 trillion .Overall, Rs1.94 trillion or 3.01 per cent of the commercial loans is showing incipient stress. Let’s focus on the retail loans — mortgages, auto and two-wheeler loans, loans to buy consumer durables, personal loans, education loans, credit cards, et al. Over the past few years, the amount of consumer loans, personal loans and credit cards have been swelling, signaling rise in consumption. There are 236 million such live loans and 14.8 million of them are stressed. The value of the entire retail portfolio in the system is Rs53 trillion and the stress is far more than the commercial loans — Rs4.1 trillion or 7.74 per cent.” Should we expect a flood of NPAs in the retail sector after the moratorium is lifted? But then what choices do the Indian Banks have? Corporate lending has been a disaster- it is a the sad saga of massive accumulation of NPAs and consequent write offs which had a debilitating impact on the banking industry, more particularly the government owned banks and still the government is pushing these banks to lend more. However, lending to the corporate sector has to be selective and cautious. There are many large groups who are over-leveraged and burdened with mounting debt. The RBI Prudential Exposure Norms stipulate restrictions on the bank-wise exposure to industrial groups; but what is the control on the overall exposure of the entire banking system to an industrial group? Does RBI monitor this? Let us take an example of the Adani group.. The group has total burden of Rs. 1.3 lakh crore and the group is still expanding and borrowing more. The group’s position upto 2018 was reported as under :” The Adani Group’s six listed companies, which account for almost all of its Rs 77,000 crore turnover, had operating profits of Rs 20,141 crore in 2017-’18. After accounting for interest payments, tax, depreciation and other charges, their combined net profit stands at Rs 3,455.34 crore.” The current position is not known to me. I have no malice towards them. But if the exposure becomes NPA what would happen to India’s banking system?
So, what is the way out? Deposits are growing at rapid pace but lending opportunities are restricted. The REPO window gives a measly return of just 3.5%. The options are obviously limited . Needles to add, lending is the dharma for banks. The surest way of incurring losses is to stop lending. But extreme caution and selective lending has to be exercised while lending to the corporate sector. Retail sector window cannot be blocked, as it offers only viable hope to Indian banks.
In the end, I think that the grouse against government owned banks is ill-founded. Most of them have very comfortable Provision coverage Ratios and the NPA loss has now been almost been covered. Here is the data of big six of PSU banks :IDBI Bank (95.96%), SBI (83.62%), BoB (83.3%), PNB (77.79%), Canara Bank (75.86%) and Union Bank (73.6%). Thus, we should be concerned not about PSU Banks but about private sector banks. The Yes Bank saga is quite fresh in mind. Laxmi Vilas Bank and Dhanlaxmi Banks are in hot waters. If they fail, who would protect their depositors? The failed PMC Bank had lent more than 70% of its credit to one group and it failed due to fraud and cheating. Now, which government owned bank has NPAs of around 70%?