Banks in India have $178 bn of risky corporate debt: BNP Paribas

India's banking system is the worst in Asia in terms of stressed assets, with $178 billion worth of corporate credit or 16.1 per cent of total bank credit at risk of default, says a report.

Of the total bank credit of $1,109 billion in the country, corporate debt worth $178 billion, or 16.1 per cent, stands the risk of default, French financial services major BNP Paribas said in a report

India is followed by Indonesia and China with 7.2 per cent and 6.6 per cent, respectively of total bank credit at risk of default.

In Indonesia, $22 billion of its total bank credit of $305 billion is at potential risk of default while in China, $1,050 billion of total loans worth $15,884 billion is potential bad loans, according to the report.

The report is based on an analysis of 738 listed companies in Asia, which have a combined gross debt of $1.7 trillion. BNP Paribas did not specify the time-frame of the survey.

"Mounting corporate debt is one of the biggest problems for Asian economies," the report said.

"Our country-wise analysis highlights the following percentages of bank loans at risk: 6.6 per cent in China, 16.1 per cent in India, 5.8 per cent in Korea, 2.4 per cent in Thailand and 7.2 per cent in Indonesia," it said.

The brokerage pointed out that policymakers in the various countries follow different approaches to tackling the debt problem. "China's solution seems to be a debt-to-equity swap. This was tried in China in the late 1990s," the report noted.

"The present instance, however, could be different...The government may not assume a significant part of the debt, as it did in the last instance," it added.

In India, the Reserve Bank insists on direct dealing and its "asset quality review is forcing banks to acknowledge and write off stressed assets leading to severe short-term pain, particularly for PSU banks, but will bring potential long-term gain once bad loans are fully recognised," the report noted.

RBI conducted an asset quality review in December last year, under which it identified 150 top corporate accounts that are stressed. The regulator has since asked banks to make provisions for all these 150 accounts by December and March quarters and get the entire books cleaned up by March next.

RBI's new asset quality norms have brought to the surface a whopping Rs1,00,000 crore of additional bad loans between the September and December quarters.

This has helped highlight slippages at banks, including the private sector ones.

As per current data, banks' NPAs and stressed assets already top 13 per cent of their combined loans and this could spike in the March quarter as banks come up with fresh data.