The risk to India’s banking industry rose in the six months through September as bad loans surged and profitability slumped, the central bank said.
The average gross bad-loan ratio may increase to 4.6 percent of total lending by September 2014 in a “baseline scenario,” the Reserve Bank of India said in a financial stability report posted on its website today. The ratio advanced to 4.2 percent as of Sept. 30 from 3.4 percent in March, the report showed.
Sour loans at Indian lenders are rising as the South Asian nation’s economy slows and clearances for various infrastructure projects are delayed, the RBI said. The central bank predicts India’s economy will expand 5 percent in the 12 months through March 31, the same pace as the last fiscal year, which was the weakest in a decade.
Profitability of the nation’s lenders, as measured by return on equity, fell to 10.2 percent as of Sept. 30, the lowest in at least five years, due to higher provisions for bad loans and the slowing pace of growth from loan income, the RBI report showed. Return on equity measures the profit generated with shareholders’ funds.
The S&P BSE Bankex index, a gauge of 12 banking stocks, has slumped 9.3 percent this year. State Bank of India, the nation’s largest lender, has lost 26 percent and ICICI Bank Ltd. has fallen 3.5 percent. The broader S&P BSE Sensex index has gained 9 percent.