India’s bad loans shrink from record high to 9.46 lakh crore after insolvency law

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Published: January 25, 2018 7:32:58 PM

India's Rs 9.5 lakh crore bad loans monster has shrunken to Rs 9.45 lakh crore in the quarter to September last year, the first pullback since a drive to clean up record levels of bad debt began in 2015 and signalling that tighter rules and a new bankruptcy code may be starting to show results.

banks, public sector banks, public sector units, overseas operations, rationalisation, overseas markets, financial servicesIndia’s Rs 9.5 lakh crore bad loans monster has shrunken to Rs 9.45 lakh crore in the quarter to September 2017. (Image: Reuters)

India’s Rs 9.5 lakh crore bad loans monster has shrunken to Rs 9.45 lakh crore in the quarter to September last year, the “first pullback since a drive to clean up record levels of bad debt began in 2015 and signalling that tighter rules and a new bankruptcy code may be starting to show results,” Reuters reported. According to unpublished central bank data reviewed by Reuters, stressed loans – which include non-performing as well as restructured or rolled-over loans – eased 0.4% from three months earlier to 9.46 trillion rupees ($148.3 billion) at the end of September.

The bad loans had hit a record high of 9.5 lakh crore at the end of June 2017. According to the latest available World Bank nonperforming loans data, India’s loan defaults were at staggering 9.2% of the total gross loans in 2016, second-highest in Asia after Pakistan (11.3%).

A loan becomes non-performing or bad when a borrower stops repaying either the principal amount or the interest. According to the data on bank nonperforming loans by different countries maintained by the World Bank, India’s picture is not just bad but it is also worrying.

India’s bad loans have surged drastically in the past six years. In 2011, India had just 2.67% of bad loans, which surged to 5.88% in 2015. The sharpest rise came in 2016 when the bad loans shot up to 9.18%. However, several efforts were taken, including identifying big corporate defaults and starting insolvency proceedings against them. Over a dozen companies have been taken to insolvency court since June.

That would be the first decline in soured assets since at least 2015, according to quarterly data collected by Reuters. On an annual basis, stressed assets have risen steadily since the year to March 2006. On Wednesday, the government announced to infuse a big part of its massive bank recapitalisation plan in 20 public sector banks to boost their lending capacity, however, also set 6-point reform scale for them to ensure that there are minimum cases of loans defaults or bad loans.

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