From The Frying Pan Into The Fire: Bad Debts In India Are Getting A Lot Worse

by Vinaya HS on March 14, 2017

in Finance

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In March 2014, months before the Bhartiya Janta Party (BJP) would establish government after the 16th Lok Sabha elections, the Reserve Bank of India (RBI) announced grim news. Bad Debts in India were rapidly on the rise, so much so that banks had reported Non Performing Assets worth INR 1,73,800 crore. Fast forward three years and we have moved from the frying pan into the fire.

Bad loans have escalated by 135 per cent i.e they have risen from INR 1,73,800 crore in 2014 to INR 2,61,843 crore in just two years. Not only have the amount of NPAs increased, the recovery rate from these bad debts is merely 18.4 per cent, i.e banks have managed to recover around INR 32,000 crore as of January 2017. Earlier this year, bank credit growth hit an all time low, perhaps the lowest in nearly two decades. Recent reports in business news have confirmed that there is still a whopping outstanding of INR 6.8 lakh crore (this figure could have even crossed INR 7 lakh crore) in NPAs. We’re talking about a 56.4 per cent surge in NPAs in 2016 alone and this is likely to follow an upward trajectory. NPAs of public sector banks stand at a 70:30 ratio with 70 per cent bad debts belonging to large corporate houses and the remaining 30 per cent belonging to small and medium scale enterprises.

While the RBI has been chalking out a plethora of restructuring schemes, there haven’t been any drastic improvements to curtail this situation. Additionally, banks are blaming the pressure set by the demonetisation drive for their delay in clearing balance sheets. It is predicted that most banks will miss the March 2017 deadline set by the RBI.

Meanwhile, Finance Minister, Arun Jaitley’s brainstorming session with RBI governor, Urjit Patel, RBI Deputy Governor Viral Acharya and S S Mundra, besides Chief Economic Advisor Arvind Subramanian, Principal Economic Advisor Sanjiv Sanyal, Financial Services Secretary Anjuly Chib Duggal and Corporate Affairs Secretary Tapan Ray has left business news publications abuzz. The meeting held on Friday, 10th March discussed options for resolution stressed assets in the banking sector including the twin concept of Private Asset Management Company (PAMC) and National Asset Management Company (NAMC).

Though the RBI is not in favour of extending timelines of large loan defaulters, it has suggested various schemes for tackling bad loans, including Scheme for Sustainable Structuring of Stressed Assets (S4A), Corporate debt restructuring (CDR), Joint Lenders Forum (JLR) and Strategic Debt restructuring (SDR). Although nothing is concrete yet, there is definite hope for recovery to pick up pace once RBI reforms are put in place.

In other business news, Chief of the Public Accounts Committee (PAC), K.V Thomas in a statement last week said that he hoped Public Sector Banks would consider publicly shaming large corporations by revealing their names (a common practice undertaken by banks to shame small scale defaulters).

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