Munbai/New Delhi, May 4: India expects bad debts at its banks could double after the coronavirus crisis brought the economy to a sudden halt, a senior government official and four top bankers said.
Indian banks are already grappling with 9.35 trillion rupees ($123 billion) of soured loans, which was equivalent to about 9.1% of their total assets at the end of September 2019.
"There is a considered view in the government that bank non-performing assets (NPAs) could double to 18-20% by the end of the fiscal year, as 20-25% of outstanding loans face a risk of default," the official with direct knowledge of the matter said.
A fresh surge in bad debt could hit credit growth and delay India's recovery from the coronavirus pandemic.
"These are unprecedented times and the way it's going we can expect banks to report double the amount of NPAs from what we've seen in earlier quarters," the finance head of a top public sector bank told Reuters.
The official and bankers declined to be named as they were not officially authorized to discuss the matter with media.
India's finance ministry declined to comment, while the Reserve Bank of India and Indian Banks' Association, the main industry body, did not immediately respond to emails seeking comment.
The Indian economy has ground to a standstill amid a 40-day nationwide lockdown to rein in the spread of coronavirus cases.
The lockdown has now been extended by a further two weeks, but the government has begun to ease some restrictions in districts that are relatively unscathed by the virus.
India has so far recorded nearly 40,000 cases of the coronavirus and more than 1,300 deaths from COVID-19, the respiratory disease caused by the coronavirus.
'RIDING THE TIGER'
Bankers fear it is unlikely that the economy will fully open up before June or July, and loans, especially those to small- and medium-sized businesses which constitute nearly 20% of overall credit, may be among the worst affected.
This is because all 10 of India's largest cities fall in high-risk red zones, where restrictions will remain stringent.
A report by Axis Bank said that these red zones, which contribute significantly to India's economy, account for roughly 83% of the overall loans made by its banks as of December.
One of the sources, an executive director of a public sector bank, said that economic growth had been sluggish and risks had been heightened, even ahead of the coronavirus crisis.
"Now we have this Black Swan event which means without any meaningful government stimulus, the economy will be in tatters for several more quarters," he said.
McKinsey & Co last month forecast India's economy could contract by around 20% in the three months through June, if the lockdown was extended to mid-May, and growth in the fiscal year was likely to fall 2% to 3%.
Bankers say the only way to stem the steep rise in bad loans is if the RBI significantly relaxes bad asset recognition rules.
Banks have asked the central bank to allow all loans to be categorized as NPAs only after 180 days, which is double the current 90-day window.
"The lockdown is like riding the tiger, once we get off it we'll be in a difficult position," a senior private sector banker said.
Comments
An Indian Haj subsidy that did not exist!
Thank you Prime Minister Modi for ending Haj subsidy that never existed.
I completely welcome this move making the announcement, minister Mukhtar Abbas Naqvi said: “We believe in empowerment without appeasement.”Naqvi did not elaborate what he meant by “appeasement” but for decades, Haj subsidy remained a whip in the hands of right-wing parties to attack political rivals. Bharatiya Janata Party to embarrass rivals by accusing them of “appeasing” Muslims by subsiding expenses involved in the pilgrimage to Makkah and Madina. Angered by this attack, several Muslims have been demanding an end to the subsidy.
However, it is important to understand what this subsidy was and whether Muslims actually benefitted from it. In 2016-17, the government budgeted Rs 4.5 billion subsidy for around 100,000 Muslims who performed Haj last year. Each pilgrim paid around Rs 220,000 (amount varies each year) for airfare; stay in Makkah and Madina and for miscellaneous expenses. This money is paid to government-managed Haj committees which then transfers this money to other agencies. In other words, each Muslim pays for his/her own Haj expenses.
A significant chunk of money paid by Muslims goes to India’s government-owned national carrier Air India which enjoys a virtual monopoly on Haj circuit. The airline picks up passengers from around a dozen cities and flies them to Jeddah. The Air India inflates India-Jeddah tickets during the Haj season. This so-called government subsidy is used to pay for tickets that are always higher than the prevailing airfare charged by other airlines. A breakdown would show that an Air India ticket to Jeddah would cost more than a trip to Los Angeles from India. Essentially, the government takes money from one pocket and puts it back in another. Muslim have always demanded global tenders for Haj flights and for providing accommodation in Makkah and Madina..
However, while Naqvi sought to take a high moral ground by claiming that his party appeases no section of the society, his own government spends billions of rupees on organizing Hindu pilgrimages every year
Naqvi saab, this is what you learnt in Madrasa? U r Back-Stabbing Muslims. There is no 1% quality of muslim in you. After joining BJP you have lost it. First learn humanity. Almighty will give answers for all problems you have created for others.
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