Concerns over rising number of bad loans in India

A recent study shows the number of bad loans handed out by Indian banks has reached levels with some financial institutions warning that a shock to the global banking system could already be on the way.

The study conducted by CARE Ratings found that 9.85 percent of loans made by Indian banks had become non-performing assets (NPAs). It added that this had made India the fifth country out of 39 major world economies plagued by bad loans.

The study further warned that the NPAs accumulated by Indian lenders were higher than those of banks in most major economies, including the US, UK, China, and Japan.

The only countries with a higher NPA ratio than India were beleaguered European countries known as the distressed PIIGS group – Portugal, Italy, Ireland and Greece.

These five euro zone nations have faced immense economic and financial stress for a decade now, with several steps having been taken to restore their health, according to a report by Quartz Media.

However, unlike them, India had been growing in the last few years even as lenders came under pressure due to unpaid dues. While the worst may be over, the problem itself is far from disappearing, the report added.

On a related front, the Reserve Bank of India (RBI) had previously cautioned against further deterioration of the growth of bad loans in the country, warning that NPAs could inch up to 10.8 percent before March 2018.

This drew a reaction from the International Monetary Fund (IMF) which warned of an impending shock to the banking system if that happens.

In October, New Delhi announced a $32 billion recapitalization package to improve Indian banks’ balance sheets. Nevertheless, independent analysts found this was a mere fraction of what Indian banks needed to regain health, according to a report by Bloomberg.