The bad loan crisis at Indian state-owned banks continues to worsen, with banks posting a 56.4 per cent rise in gross non-performing assets or NPAs in 2016, The Indian Express reported citing research from Care Ratings.
The situation is unlikely to improve in the coming quarters as many small to medium-sized business have been hit by the cash crunch and may be unable to repay loans, said the report.
Bad loans for both public and private banks stood at about Rs 697,409 crores at the end December 2016 with gross NPAs making up about 11 per cent of the gross advances at public sector banks. Bad loans surged a whopping 135 per cent in the past two years.
State Bank of India (SBI) saw a 48.6 per cent rise in NPAs to Rs 72,791.73 crores from the previous year. While Punjab National Bank 's (PNB) bad loans increased 38 per cent to Rs 55,627 crores, and Bank of Baroda saw a 8.6 per cent increase to Rs 42,642 crores.
Moody's Investors Service and its Indian affiliate ICRA also see subdued prospects for India's banks with asset deterioration a key challenge over the medium term.
"Asset quality will remain a negative driver of the credit profiles of most rated Indian banks and the stock of impaired loans. Non-performing loans (NPLs) and standard restructured loans will still rise during the horizon of our outlook," Alka Anbarasu, a Moody's vice president and senior analyst, wrote in a recent report.
The worsening bad loans crisis highlights the urgent need for recapitalisation of Indian banks and the most recent Indian Union budget provided little visibility how this issue will be addressed, noted Moody's.
In the latest budget, the government budgeted Rs 100 billion of capital infusion for public sector banks in fiscal 2018, significantly below the Rs 250 billion it had set aside in the previous year. This lower capital allocation is a "credit negative" for public sector banks, said Moody's.
According to Moody's, the lack of a clear resolution mechanism to deal with public sector bank asset quality issues continues to weigh on India's sovereign credit profile, due to the contingent liability associated with government ownership of banks.