With Rs9,50,000-cr bad loans, India is fifth among high NPA nations: CARE Rating

With Rs9,50,000 crore of stressed assets with the banking sector exerting a big pressure on the Indian economy, India has emerged as the fifth economy globally in terms of high non-performing loans, according to a recent report.

According to the research report prepared by CARE Ratings, India stands fifth after Portugal, Italy, Ireland, and Greece as far as stressed assets are concerned. Even Spain, one of the worst NPA-hit nations in Europe, has a lesser ratio of bad loans when compared to India, says the report.

"The seriousness of the NPA problem can be gauged by the absolute level of impaired assets in the system. Ever since the Reserve Bank of India (RBI) had spoken of asset quality recognition (AQR) in 2015, there was an increase in the pace of recognising these assets," wrote Madan Sabnavis, chief economist at CARE Ratings, in the report.

"For European nations, the bad loans are more of a legacy problem whereas for us it is something that got recognised only two years back," he added.

Banks in India started recognising bad loans as NPAs only after former RBI governor Raghuram Rajan introduced asset quality recognition norms that forced commercial banks to go after loan defaulters.

This caused a significant surge in the NPAs in the banking system, especially public sector banks (PSBs). The bad loan scenario in India has, in fact, worsened with bad loans of banks rising to Rs9,50,000 crore at the end of June 2017 from Rs7,70,00 crore as of end-March 2017.

According to a World Bank report, India's bad loans have surged drastically in the past six years. The sharpest rise came in 2016 when the bad loans shot up to 9.18 per cent.

Analysts see high interest rates and slower revenue growth as the twin reasons behind India's increasing stressed assets.

However, the RBI along with the central government and public sector banks are trying to resolve the situation through the introduction of the Insolvency and Bankruptcy Code (IBC) in May 2016 and ensure time-bound settlement of bad loan issues.

Simultaneously, the government in October announced a Rs2,11,000 crore bank recapitalisation plan for state-owned lenders weighed down by bad loans to stimulate credit flow  and revive private investment.