India's bad loans highest among emerging markets: RBI

Indian lenders have the highest percentage of bad loans compared with 10 emerging economies including Brazil, China, Indonesia, Philippines, and Turkey, according to RBI data, which also reveals that though bad loans declined 9.1% in March 2019 from 11.2% in the same period last year, most of those came down due to write-offs by banks.

The lenders wrote off Rs 2.36 lakh crore of non-performing assets or bad loans from their books, data from the Reserve Bank of India and the Ministry of Finance showed.

Banks write off bad debt that is declared non-collectable removing it from their balance sheets.

The data also revealed that the recovery of loans under the Insolvency and Bankruptcy Code amounted to Rs 70,000 crore. The recovery rates yielded by other resolution mechanisms such as SARFAESI and debt recovery tribunals declines.

The gross NPAs of all lenders -- public sector, private sector, and foreign banks – was at Rs 9.36 lakh crore in 2018-19, which was 9.1% of their total advances.

Loan recovery was about 1.3 percentage points higher through Lok Adalats in 2018-19 over the previous year and reached 5.3%.

“Notwithstanding the enhanced resolutions through the Insolvency and Bankruptcy Code (IBC), the overhang of NPAs remains high. The health of the banking sector hinges around a turnaround in macroeconomic conditions,” the RBI said in a report on trend and progress of banking in India.

The data in the report showed that while China has only 1.8% of all bank loans turned sour, Turkey has the highest of 4% but far behind India’s 9.1% bad loans on scheduled commercial banks’ loan books.

The RBI said that due to subdued profitability of corporates, their low-interest coverage ratio and deleveraging (an act of rapidly selling assets by companies to reduce the level of their debt), lenders have been shifting their focus away from large industrial loans towards retail loans, as the NPA ratios of the latter have traditionally been low.

It, however, cautioned that the slowdown in consumption and overall economic growth may affect the demand for and the quality of retail loans and asked banks to restart industrial credit to regenerate investment and growth in the economy.

During 2018-19, the asset quality of scheduled commercial banks turned around after a gap of seven years with an accompanying reduction in provisioning requirements. The banking sector returned to profitability in the first half of 2019-20 as recapitalisation helped public sector banks in shoring up their capital ratios.

But credit growth revival that began in 2017-18, gained traction in 2018-19, led only by private sector banks.

Notwithstanding these gains, credit growth has turned anaemic in 2019-20 while the overhang of NPAs has remained high.