Image for representation only.

Unhealthy Debt of Indian Banks May Double From Rs 9.35 Lakh Crore As a result of Coronavirus Disaster: Report

Image for representation only.

Picture for illustration solely.

Indian banks are already grappling with 9.35 lakh crore rupees ($123 billion) of soured loans, which was equal to about 9.1% of their complete property on the finish of September 2019.

  • Reuters
  • Final Up to date: Might 3, 2020, 11:59 PM IST

Mumbai: India expects dangerous money owed at its banks may double after the coronavirus disaster introduced the financial system to a sudden halt, a senior authorities official and 4 high bankers informed Reuters.

Indian banks are already grappling with 9.35 lakh crore rupees ($123 billion) of soured loans, which was equal to about 9.1% of their complete property on the finish of September 2019.

“There’s a thought-about view within the authorities that financial institution non-performing property (NPAs) may double to 18-20% by the top of the fiscal 12 months, as 20-25% of excellent loans face a threat of default,” the official with direct information of the matter mentioned.

A recent surge in dangerous debt may hit credit score development and delay India’s restoration from the coronavirus pandemic.

“These are unprecedented instances and the way in which it is going we are able to count on banks to report double the quantity of NPAs from what we have seen in earlier quarters,” the finance head of a high public sector financial institution informed Reuters.

The official and bankers declined to be named as they weren’t formally licensed to debate the matter with media.

India’s finance ministry declined to remark, whereas the Reserve Financial institution of India and Indian Banks’ Affiliation, the primary business physique, didn’t instantly reply to emails searching for remark.

The Indian financial system has floor to a standstill amid a 40-day nationwide lockdown to rein within the unfold of coronavirus circumstances.

The lockdown has now been prolonged by an additional two weeks, however the authorities has begun to ease some restrictions in districts which are comparatively unscathed by the virus.

India has up to now recorded almost 40,000 circumstances of the coronavirus and greater than 1,300 deaths from COVID-19, the respiratory illness brought on by the coronavirus.

‘RIDING THE TIGER’

Bankers concern it’s unlikely that the financial system will absolutely open up earlier than June or July, and loans, particularly these to small- and medium-sized companies which represent almost 20% of general credit score, could also be among the many worst affected.

It’s because all 10 of India’s largest cities fall in high-risk purple zones, the place restrictions will stay stringent.

A report by Axis Financial institution mentioned that these purple zones, which contribute considerably to India’s financial system, account for roughly 83% of the general loans made by its banks as of December.

One of many sources, an government director of a public sector financial institution, mentioned that financial development had been sluggish and dangers had been heightened, even forward of the coronavirus disaster.

“Now we’ve got this Black Swan occasion which implies with none significant authorities stimulus, the financial system will likely be in tatters for a number of extra quarters,” he mentioned.

McKinsey & Co final month forecast India’s financial system may contract by round 20% within the three months by way of June, if the lockdown was prolonged to mid-Might, and development within the fiscal 12 months was more likely to fall 2% to three%.

Bankers say the one method to stem the steep rise in dangerous loans is that if the RBI considerably relaxes dangerous asset recognition guidelines.

Banks have requested the central financial institution to permit all loans to be categorized as NPAs solely after 180 days, which is double the present 90-day window.

“The lockdown is like driving the tiger, as soon as we get off it we’ll be in a tough place,” a senior personal sector banker informed Reuters.

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