SBI Sees Bad Loans at India Banks Worsening on Slower GrowthBy and
Bhattacharya expects loan resolution to quicken in four months
Cash ban and inadequate tools delayed bad debt recovery
India’s weaker economic growth will lead to more soured loans, even after an audit of lenders’ books pushed stressed assets in the South Asian nation to the highest among major economies, according to the head of the country’s largest bank.
“There could be a few more accounts that could start showing stress mainly because the kind of growth in demand that we have been talking about still has not really come back,” State Bank of India chairman Arundhati Bhattacharya said in an interview with Bloomberg Television in Hong Kong on Tuesday.
India’s economy will grow 7.1 percent in the year through March, the slowest pace in three years, the government forecast on Tuesday. Even so, that’s more optimistic than the 6.8 percent forecast by economists in a recent Bloomberg survey, taking into account the impact of Prime Minister Narendra Modi’s surprise cash ban in November.
Asia’s third-largest economy is being weighed down as the soured loans on bank balance sheets hinder credit growth and job creation. Various schemes proposed by the central bank to resolve the problem have been unsuccessful with lenders reluctant to write down assets sufficiently and company owners unwilling to negotiate repayment plans.
Stressed assets -- made up of bad loans, restructured debt and advances to companies that can’t meet servicing requirements -- have risen to about 16.6 percent of total loans, the highest level among major economies, data compiled by the government shows.
The resolution process for bad loans has been delayed as the current tools offered by the RBI are inadequate and lenders have recently been focused on dealing with the fall out from Modi’s cash ban, Bhattacharya said.
The RBI completed its audit of the nation’s 50 lenders last year, forcing them to lay bare previously-hidden nonperforming loans. Credit Suisse Group AG estimates banks will have to put aside at least 860 billion rupees ($13 billion) in the next 12 months to comply with higher central-bank requirements for older soured debt.
“We believe in another four months time you will see these resolutions happening and if that happens then, definitely, I think we can declare the clean-up process will have served its purpose and be over,” Bhattacharya said.
S&P Global Ratings said Tuesday that India’s banks will recover only marginally over coming quarters, citing a reluctance by the corporate sector to invest and a ’wait and watch’ approach by retail borrowers. Weak profitability and rising capital demands will also weigh on public sector banks, the ratings firm said.
Still, Bhattacharya was upbeat on the economy said there are signs activity is rebounding sharply, citing a strong recovery among companies after an initial drop in sales triggered by the cash ban.
"The bounce back is already happening, it is more of a V-shaped recovery," Bhattacharya said.