India Central Bank Sees Sharp Rise in Bank Risk on Bad Loans
- Profitability at lenders falls to lowest level since 1999
- Outgoing RBI Governor Rajan had campaigned against bad debt
What's Next for Rajan and the RBI?
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Risks to India’s banking industry have “sharply increased” since September as surging bad loans drag lenders’ profitability to the lowest since at least 1999, according to the Reserve Bank of India.
Banks’ return on assets fell to 0.4 percent at the end of March from 0.8 percent a year earlier, according to the central bank’s Financial Stability Report released Tuesday. The industry’s gross bad-loan ratio jumped to a 13-year high of 7.6 percent, following a six-month RBI audit of banks’ bad-debt disclosures. Under a “baseline stress scenario,” that ratio may rise to 8.5 percent by next March, the deadline set by RBI Governor Raghuram Rajan for banks to clean up soured credit, the report showed.