Europe's leading banks, including Deutsche Bank and Lloyds Banking Group, have raised concerns over the escalating threat of bad loans amidst the current global economic challenges marked by sluggish growth and surging inflation.

As financial regulators and investors closely monitor the banking sector's performance during this uncertain economic climate, the focus has shifted to how banks in Europe manage their loan books and identify signs of potential stress.

In the recent flurry of bank earnings reports in Europe, a few key trends emerged in the global banking landscape. Investment banks are experiencing pressure due to a deal drought, while retail banking profitability is benefiting from higher interest rates.

Lloyds Banking Group reported taking a higher charge for troubled loans, resulting in first-half profit falling short of expectations. The economic slowdown in Britain weighed heavily on the bank's finances, prompting calls for further actions from management to assist savers. The unexpected surge in potentially soured loans, amounting to $855 million, and declining loan volumes led analysts at JPMorgan to predict downgrades in Lloyds' performance for the year. As a consequence, Lloyds' shares were down three&nbsp;per cent early on Wednesday.

In contrast, higher interest rates have been a boon for UniCredit, allowing the bank to significantly exceed earnings expectations in the second quarter. Although UniCredit foresees an increase in its cost of risk, CEO Andrea Orcel asserted that it would be less severe than initially anticipated. Orcel expressed cautious optimism. "We don't expect an Armageddon increase in the cost of risk," he said, adding that expected shocks would be pushed further into the future.

While the International Monetary Fund (IMF) marginally revised its 2023 global growth estimates upward, it cautioned that persistent challenges continue to dampen the medium-term economic outlook. Inflation has moderated, and acute stress in the banking sector has subsided; however, the IMF emphasized that risks to the global economy remain tilted toward the downside, and credit remains tight.

The European Central Bank (ECB) reported a significant drop in euro zone companies' demand for loans during the last quarter, reaching the lowest level on record. The trend is expected to continue throughout the summer as banks tighten access to credit. In response to the growing concern about bad loans, Germany's financial regulator, BaFin, has urged banks to increase the provisions for such risks.

Deutsche Bank revealed that provisions for bad loans nearly doubled in the second quarter compared to the previous year, amounting to $455 million. James von Moltke, the bank's Chief Financial Officer, highlighted a "softening in some sectors," signaling potential trouble areas. The bank adjusted its guidance, expecting provisions for souring loans to be at the higher end.

Meanwhile, Santander, a major Spanish bank, reported weakness in its key market, Brazil, with net profit plunging 52 per cent year-on-year in the quarter. Rising costs attributed to inflation, negative tax impacts, and a decline in net interest income have contributed to the challenges in the Brazilian market. However, Santander's financial chief expressed optimism, suggesting that bad loans in Brazil may have already peaked.

European Union banking regulators are preparing to release stress test results later this week, evaluating banks' resilience during an extended period of high inflation and interest rates. The ECB's decision to raise euro zone borrowing costs to the highest level in 22 years has positively impacted some banks' performance. UniCredit, for instance, raised its net profit and shareholder reward targets for the year after experiencing a 25 per cent year-on-year surge in revenues. As a result, the bank's shares rose around 2 per cent on Wednesday, with Jefferies forecasting further upside potential to net interest income.

(With Inputs from Reuters)

Europe's leading banks, including Deutsche Bank and Lloyds Banking Group, have raised concerns over the escalating threat of bad loans amidst the current global economic challenges marked by sluggish growth and surging inflation.

Europe's leading banks, including Deutsche Bank and Lloyds Banking Group, have raised concerns over the escalating threat of bad loans amidst the current global economic challenges marked by sluggish growth and surging inflation. As financial regulators and investors closely monitor the banking sector's performance during this uncertain economic climate, the focus has shifted to how banks in Europe manage their loan books and identify signs of potential stress. In the recent flurry of bank earnings reports in Europe, a few key trends emerged in the global banking landscape. Investment banks are experiencing pressure due to a deal drought, while retail banking profitability is benefiting from higher interest rates. Lloyds Banking Group reported taking a higher charge for troubled loans, resulting in first-half profit falling short of expectations. The economic slowdown in Britain weighed heavily on the bank's finances, prompting calls for further actions from management to assist savers. The unexpected surge in potentially soured loans, amounting to $855 million, and declining loan volumes led analysts at JPMorgan to predict downgrades in Lloyds' performance for the year. As a consequence, Lloyds' shares were down three per cent early on Wednesday. In contrast, higher interest rates have been a boon for UniCredit, allowing the bank to significantly exceed earnings expectations in the second quarter. Although UniCredit foresees an increase in its cost of risk, CEO Andrea Orcel asserted that it would be less severe than initially anticipated. Orcel expressed cautious optimism. "We don't expect an Armageddon increase in the cost of risk," he said, adding that expected shocks would be pushed further into the future. While the International Monetary Fund (IMF) marginally revised its 2023 global growth estimates upward, it cautioned that persistent challenges continue to dampen the medium-term economic outlook. Inflation has moderated, and acute stress in the banking sector has subsided; however, the IMF emphasized that risks to the global economy remain tilted toward the downside, and credit remains tight. The European Central Bank (ECB) reported a significant drop in euro zone companies' demand for loans during the last quarter, reaching the lowest level on record. The trend is expected to continue throughout the summer as banks tighten access to credit. In response to the growing concern about bad loans, Germany's financial regulator, BaFin, has urged banks to increase the provisions for such risks. Deutsche Bank revealed that provisions for bad loans nearly doubled in the second quarter compared to the previous year, amounting to $455 million. James von Moltke, the bank's Chief Financial Officer, highlighted a "softening in some sectors," signaling potential trouble areas. The bank adjusted its guidance, expecting provisions for souring loans to be at the higher end. Meanwhile, Santander, a major Spanish bank, reported weakness in its key market, Brazil, with net profit plunging 52 per cent year-on-year in the quarter. Rising costs attributed to inflation, negative tax impacts, and a decline in net interest income have contributed to the challenges in the Brazilian market. However, Santander's financial chief expressed optimism, suggesting that bad loans in Brazil may have already peaked. European Union banking regulators are preparing to release stress test results later this week, evaluating banks' resilience during an extended period of high inflation and interest rates. The ECB's decision to raise euro zone borrowing costs to the highest level in 22 years has positively impacted some banks' performance. UniCredit, for instance, raised its net profit and shareholder reward targets for the year after experiencing a 25 per cent year-on-year surge in revenues. As a result, the bank's shares rose around 2 per cent on Wednesday, with Jefferies forecasting further upside potential to net interest income. (With Inputs from Reuters)

Bad loans: Europe's banking sector's new arch-nemesis?

Here's A Report On India's NPA Crisis & The Measures Brought In To Tackle The Menace VG Siddhartha's demise has brought in the issue of tax evasion and law enforcement to the fore. If tax evasion is one problem in the economy, the other problem is bad loans. Here too, several big businessmen have been 'wilful offenders' and several bankers are accused of granting dodgy loans. Here's a look at India's NPA story.

Gravitas: India's bad loan problem

Defence Minister Nirmala Sitharaman has blamed the Congress-led UPA regime for public and private sector banks facing huge corporate bad loans.

The loans were provided without following due diligence and as a result, defaulters fled the country and the banks had no money to lend, Sitharaman said while referring to fugitive business barons like Vijay Mallya and Nirav Modi.

Sitharaman had also held the portfolios of corporate affairs and finance (Minister of State) and was the Minister of State (Independent Charge), Commerce and Industry.

Huge loans were provided by banks at the drop of a hat "when a phone call was made," by the powers that be, the minister said, addressing a Bharatiya Janata Party traders wing meet here Tuesday.

Since such loans were not paid back till date, the banks faced a crunch and could not lend for new businesses, she claimed.

"Public and private sector banks are all facing difficulty due to this. Though policy allowed banks to provide loans, banks are not prepared to lend as they do not have money. Why this happened," she asked.

Loans were provided to "acquaintances" without any assessment, scrutiny or background check to ascertain if the promoters could actually carry on the business and pay back the loan, and it was "crony capitalism," followed by the UPA regime, she alleged.&nbsp;

"Under the guise of providing loans to do business, banks were made to lend without assessing factors like repayment capabilities, assets and expertise and they (apparently referring to Vijay Mallya and others) have departed with the money and the banks do not have money," Sitharaman said.

Under such circumstances, to achieve 7.5 to 8 per cent growth (GDP) rate, several efforts have been taken by Prime Minister Narendra Modi, she said.

To tackle the issue of defaulters fleeing the country after cheating banks, an enabling legislation - The Insolvency and Bankruptcy Code, 2016 - was passed which envisaged attachment of properties, she said.

"This law was not brought during their (UPA) regime)," she said.

The defaulters fled the country in view of tough action. Even if the defaulters had fled the country, efforts are being made to bring them back home to justice and attach their properties as well for default, she said.

Sitharaman said the BJP-led Centre has given good governance and all welfare schemes have to be taken to the people.

If a comparison was made between the 48 years rule of the Congress and other parties at the Centre and the BJP-led NDA for the past 48 months, she said it could be understood that what the Centre has been doing was a "herculean task".

"During the 10 years of the UPA regime, they did nothing to give good governance," she said.

"At that time, even at the cost of "betrayal" of the country, those who held power eyed only things that could be "grabbed," and the then prime minister Manmohan Singh was not bothered about it even as corruption reigned," she alleged.

Sitharaman spoke about other welfare schemes of the Centre like the 'Ayushman Bharat.'

The traders' wing meet was the starting point to the Lok Sabha campaign in Tamil Nadu, she said.&nbsp;

Defence Minister Nirmala Sitharaman has blamed the Congress-led UPA regime for public and private sector banks facing huge corporate bad loans. The loans were provided without following due diligence and as a result, defaulters fled the country and the banks had no money to lend, Sitharaman said while referring to fugitive business barons like Vijay Mallya and Nirav Modi.

Defence Minister Nirmala Sitharaman has blamed the Congress-led UPA regime for public and private sector banks facing huge corporate bad loans. The loans were provided without following due diligence and as a result, defaulters fled the country and the banks had no money to lend, Sitharaman said while referring to fugitive business barons like Vijay Mallya and Nirav Modi. Sitharaman had also held the portfolios of corporate affairs and finance (Minister of State) and was the Minister of State (Independent Charge), Commerce and Industry. Huge loans were provided by banks at the drop of a hat "when a phone call was made," by the powers that be, the minister said, addressing a Bharatiya Janata Party traders wing meet here Tuesday. Since such loans were not paid back till date, the banks faced a crunch and could not lend for new businesses, she claimed. "Public and private sector banks are all facing difficulty due to this. Though policy allowed banks to provide loans, banks are not prepared to lend as they do not have money. Why this happened," she asked. Loans were provided to "acquaintances" without any assessment, scrutiny or background check to ascertain if the promoters could actually carry on the business and pay back the loan, and it was "crony capitalism," followed by the UPA regime, she alleged. "Under the guise of providing loans to do business, banks were made to lend without assessing factors like repayment capabilities, assets and expertise and they (apparently referring to Vijay Mallya and others) have departed with the money and the banks do not have money," Sitharaman said. Under such circumstances, to achieve 7.5 to 8 per cent growth (GDP) rate, several efforts have been taken by Prime Minister Narendra Modi, she said. To tackle the issue of defaulters fleeing the country after cheating banks, an enabling legislation - The Insolvency and Bankruptcy Code, 2016 - was passed which envisaged attachment of properties, she said. "This law was not brought during their (UPA) regime)," she said. The defaulters fled the country in view of tough action. Even if the defaulters had fled the country, efforts are being made to bring them back home to justice and attach their properties as well for default, she said. Sitharaman said the BJP-led Centre has given good governance and all welfare schemes have to be taken to the people. If a comparison was made between the 48 years rule of the Congress and other parties at the Centre and the BJP-led NDA for the past 48 months, she said it could be understood that what the Centre has been doing was a "herculean task". "During the 10 years of the UPA regime, they did nothing to give good governance," she said. "At that time, even at the cost of "betrayal" of the country, those who held power eyed only things that could be "grabbed," and the then prime minister Manmohan Singh was not bothered about it even as corruption reigned," she alleged. Sitharaman spoke about other welfare schemes of the Centre like the 'Ayushman Bharat.' The traders' wing meet was the starting point to the Lok Sabha campaign in Tamil Nadu, she said.

Sitharaman blames UPA for bad loans, defaulters fleeing country

India's state-run banks posted a combined loss of 853.7 billion rupees or 8.5 lakh crore ($12.65 billion) in the fiscal year ended this March, according to data compiled by Reuters, as their provisions for bad loans surged following stricter central bank rules.

All but two of the 21 banks in which India owns a majority plunged into losses in the March quarter after the Reserve Bank of India in February withdrew half a dozen loan restructuring schemes and put in place other curbs.

For the fourth quarter alone, total losses in the state-run banking sector were 626.81 billion rupees or 6.26 lakh crore ($9.30 billion) - negating modest profits at Indian Bank and Vijaya Bank.

To be sure, state banks as a whole posted losses in the prior two years too, hurt mostly by bad loans. But the 2017/18 loss is the highest ever in their history.

Gross non-performing loans at the 21 banks rose about 15 per cent from three months earlier to 8.96 trillion rupees ($133 billion) at the end of March. Bad loans as a percentage of total loans also rose at most banks, with IDBI Bank clocking the highest bad-loan ratio of 27.95 per cent, followed by Indian Overseas Bank's 25.28 per cent.

The bad-loan surge and the record losses come at a time when New Delhi has drawn up a 2.11 trillion-rupee, two-year, plan to recapitalise the state lenders which account for two-thirds of the country's banking assets in its efforts to kick-start lending growth.

However, some fear that most of the banks will be left with no funds for growth after meeting provision requirements and higher capital ratios mandated by global Basel III banking rules to be fully effective by March 2019.

For the fourth quarter alone, total losses in the state-run banking sector were 626.81 billion rupees or 6.26 lakh crore.

India's state-run banks posted a combined loss of 853.7 billion rupees or 8.5 lakh crore ($12.65 billion) in the fiscal year ended this March, according to data compiled by Reuters, as their provisions for bad loans surged following stricter central bank rules. All but two of the 21 banks in which India owns a majority plunged into losses in the March quarter after the Reserve Bank of India in February withdrew half a dozen loan restructuring schemes and put in place other curbs. For the fourth quarter alone, total losses in the state-run banking sector were 626.81 billion rupees or 6.26 lakh crore ($9.30 billion) - negating modest profits at Indian Bank and Vijaya Bank. To be sure, state banks as a whole posted losses in the prior two years too, hurt mostly by bad loans. But the 2017/18 loss is the highest ever in their history. Gross non-performing loans at the 21 banks rose about 15 per cent from three months earlier to 8.96 trillion rupees ($133 billion) at the end of March. Bad loans as a percentage of total loans also rose at most banks, with IDBI Bank clocking the highest bad-loan ratio of 27.95 per cent, followed by Indian Overseas Bank's 25.28 per cent. The bad-loan surge and the record losses come at a time when New Delhi has drawn up a 2.11 trillion-rupee, two-year, plan to recapitalise the state lenders which account for two-thirds of the country's banking assets in its efforts to kick-start lending growth. However, some fear that most of the banks will be left with no funds for growth after meeting provision requirements and higher capital ratios mandated by global Basel III banking rules to be fully effective by March 2019.

Hurt by bad loans, India's public sector banks post highest ever loss of Rs 8.5 lakh crore in 2017-18

India's five biggest state-run banks are experiencing a bad loan of Rs 47,000 crore.

The audits revealed by the Reserve Bank of India for the year ended March 31, 2017 showed that the banks were experienced large losses.

Half of the countries 22 state-run banks are under the Reserve Bank of India's strict Prompt Corrective Action (PCA), therefore the hidden bad debt will have a catastrophic&nbsp;effect on the sector.

RBI's former deputy governor has said that a few of the banks undergoing PCA may find it hard to survive.

This increases reliance on loan recoveries from India's new bankruptcy process.

An analyst at a financial service said that Bank of India would now need a “favourable outcome” -- loan recoveries of about 50 per cent -- from the bankruptcy process.

The audits revealed by the Reserve Bank of India for the year ended March 31, 2017 showed that the banks were experienced large losses

India's five biggest state-run banks are experiencing a bad loan of Rs 47,000 crore. The audits revealed by the Reserve Bank of India for the year ended March 31, 2017 showed that the banks were experienced large losses. Half of the countries 22 state-run banks are under the Reserve Bank of India's strict Prompt Corrective Action (PCA), therefore the hidden bad debt will have a catastrophic effect on the sector. RBI's former deputy governor has said that a few of the banks undergoing PCA may find it hard to survive. This increases reliance on loan recoveries from India's new bankruptcy process. An analyst at a financial service said that Bank of India would now need a “favourable outcome” -- loan recoveries of about 50 per cent -- from the bankruptcy process.

RBI discovers Rs 47,000 crore bad loan at five biggest state-run banks

ICICI Bank Ltd, India's third-largest lender by assets, said its fourth-quarter net profit almost halved, missing expectations, as provisions for bad loans surged.

Gross bad loans as a percentage of total loans stood at 8.84 per cent at the end of March compared with 7.82 per cent at the end of the previous quarter and 7.89 per cent a year earlier.

Net profit for the three months to March 31 fell to 10.20 billion rupees on Monday.&nbsp;&nbsp;

That compared with the average 10.77 billion rupees forecast of 12 analysts, according to Thomson Reuters data.

Net interest income for the quarter was up 1 per cent on the year to 60.22 billion rupees, while net interest margin was at 3.24 per cent.

Shares of the Mumbai-based lender, which started trading in 1998, ended 2.5 per cent higher ahead of the results, outperforming a slightly higher main market.&nbsp;

The results come against the backdrop of a series of allegations of impropriety in ICICI Bank's extending loans to some companies and enjoying reciprocal benefits by the family members of the bank's CEO Chanda Kochhar.&nbsp;

Gross bad loans as a percentage of total loans stood at 8.84 per cent at the end of March compared with 7.82 per cent at the end of the previous quarter and 7.89 per cent a year earlier

ICICI Bank Ltd, India's third-largest lender by assets, said its fourth-quarter net profit almost halved, missing expectations, as provisions for bad loans surged. Gross bad loans as a percentage of total loans stood at 8.84 per cent at the end of March compared with 7.82 per cent at the end of the previous quarter and 7.89 per cent a year earlier. Net profit for the three months to March 31 fell to 10.20 billion rupees on Monday. That compared with the average 10.77 billion rupees forecast of 12 analysts, according to Thomson Reuters data. Net interest income for the quarter was up 1 per cent on the year to 60.22 billion rupees, while net interest margin was at 3.24 per cent. Shares of the Mumbai-based lender, which started trading in 1998, ended 2.5 per cent higher ahead of the results, outperforming a slightly higher main market. The results come against the backdrop of a series of allegations of impropriety in ICICI Bank's extending loans to some companies and enjoying reciprocal benefits by the family members of the bank's CEO Chanda Kochhar.

ICICI Bank's Q4 profit drops by close to half as bad loans rise

Non performing assets (NPAs) or bad loans in the banking sector are set to shoot up by at least Rs 8,000 crore as advances to the scam-hit Gitanjali Gems group have turned bad during the quarter ended March 31.

Banks will have to make provisioning of Rs 8,000 crore for Gitanjali alone as there have been no servicing of the working capital loan during the fourth quarter of last fiscal, sources said.

Gitanjali, among others, is the major account which has turned bad in the fourth quarter of 2017-18.

Gross NPAs of all the banks in the country amounted to Rs 8,40,958 crore in December, led by industry loans followed by services and agriculture sectors, as per the government estimates.

Gitanjali is promoted by Mehul Choksi, uncle of billionaire diamantaire Nirav Modi, who defrauded Punjab National Bank (PNB) of over Rs 13,000 crore by getting fake Letters of Undertaking/Credit (LoU/LoCs) issued from one of the bank's branches in Mumbai.

A special CBI court in Mumbai has issued non-bailable warrants (NBWs) against Modi as well as Choksi.

A consortium of 21 banks led by Allahabad Bank had first extended a working capital loan to it in 2010-11. In 2014, ICICI Bank became the lead banker as it had highest exposure of about Rs 900 crore and in line with the revised guidelines of the Reserve Bank of India.

Till December 2017, the loans to Gitanjali Gems were standard and regular debt servicing was being done. There is no servicing of debt in the last quarter ended March 31, so it has to be declared NPA by all banks, said a senior bank official of the consortium.

In 2015, the consortium had restructured working capital loans given to Gitanjali under the joint lenders' forum (JLF) mechanism.

The Gitanjali exposure was classified as a special mention account-2 (SMA-2) in 2014 after the company failed to fulfil its payment obligations for more than 60 days, triggering the formation of a JLF.

As a result, the company announced the consolidation of the business at the group level to improve cash flows and reduce costs in various activities such as sourcing, manufacturing, distribution, exporting and retailing.

It proposed the merger of three of its subsidiaries Asmi Jewellery India and Spectrum Jewellery with Nakshatra Brands and also the merger of Gitanjali Jewellery Retail and Gitanjali Lifestyle with GILI India.

Different investigating agencies, including CBI, I-T and Enforcement Directorate, are probing the fraud, which came to light in January, dubbed as the biggest banking scam in the country.

PNB had issued as many as 1,590 LoUs to Modi, Choksi and their associates.

The total number of LoUs issued to the companies of Modi, his relatives and the Nirav Modi Group are 1,213, while those to Choksi, his relatives and the Gitanjali Group are 377.

Banks will have to make provisioning of Rs 8,000 crore for Gitanjali alone as there has been no servicing of the working capital loan during the fourth quarter of last fiscal, sources said

Non performing assets (NPAs) or bad loans in the banking sector are set to shoot up by at least Rs 8,000 crore as advances to the scam-hit Gitanjali Gems group have turned bad during the quarter ended March 31. Banks will have to make provisioning of Rs 8,000 crore for Gitanjali alone as there have been no servicing of the working capital loan during the fourth quarter of last fiscal, sources said. Gitanjali, among others, is the major account which has turned bad in the fourth quarter of 2017-18. Gross NPAs of all the banks in the country amounted to Rs 8,40,958 crore in December, led by industry loans followed by services and agriculture sectors, as per the government estimates. Gitanjali is promoted by Mehul Choksi, uncle of billionaire diamantaire Nirav Modi, who defrauded Punjab National Bank (PNB) of over Rs 13,000 crore by getting fake Letters of Undertaking/Credit (LoU/LoCs) issued from one of the bank's branches in Mumbai. A special CBI court in Mumbai has issued non-bailable warrants (NBWs) against Modi as well as Choksi. A consortium of 21 banks led by Allahabad Bank had first extended a working capital loan to it in 2010-11. In 2014, ICICI Bank became the lead banker as it had highest exposure of about Rs 900 crore and in line with the revised guidelines of the Reserve Bank of India. Till December 2017, the loans to Gitanjali Gems were standard and regular debt servicing was being done. There is no servicing of debt in the last quarter ended March 31, so it has to be declared NPA by all banks, said a senior bank official of the consortium. In 2015, the consortium had restructured working capital loans given to Gitanjali under the joint lenders' forum (JLF) mechanism. The Gitanjali exposure was classified as a special mention account-2 (SMA-2) in 2014 after the company failed to fulfil its payment obligations for more than 60 days, triggering the formation of a JLF. As a result, the company announced the consolidation of the business at the group level to improve cash flows and reduce costs in various activities such as sourcing, manufacturing, distribution, exporting and retailing. It proposed the merger of three of its subsidiaries Asmi Jewellery India and Spectrum Jewellery with Nakshatra Brands and also the merger of Gitanjali Jewellery Retail and Gitanjali Lifestyle with GILI India. Different investigating agencies, including CBI, I-T and Enforcement Directorate, are probing the fraud, which came to light in January, dubbed as the biggest banking scam in the country. PNB had issued as many as 1,590 LoUs to Modi, Choksi and their associates. The total number of LoUs issued to the companies of Modi, his relatives and the Nirav Modi Group are 1,213, while those to Choksi, his relatives and the Gitanjali Group are 377.

Bank 'bad loans' in India to rise by at least Rs 8,000 crore in Q4

The latest banking scam, this time in the Punjab National Bank to the tune of INR 11,000 crores, is yet another reminder of just how well the Indian economy is being managed in the interests of the super-wealthy. Over the years, and particularly during the boom years of the 2000s, when employment growth was negligible and &ldquo;jobless growth&rdquo; became a commonly used phrase, India&rsquo;s corporate elite, including some of its best-known business houses, went on a borrowing spree. They borrowed from private and public sector banks, they borrowed domestically and abroad. It is now clear that many of these loans were never intended to be repaid. The public sector banks, in particular, issued thousands of crores worth of loans without due diligence or even with active collaboration in the fraud.&nbsp;

Starting in the early years of this decade, the Reserve Bank of India itself was under pressure to do something about the building problem and started forcing public sector banks to reveal how many such loans were on their books. This is when the true extent of the problem, long-festering, started becoming apparent.&nbsp;

As per the recent estimates, there are around INR 10 lakh crores worth of bad loans in the Indian banking system. This number will likely rise. To gain a sense of proportion this is around 7% of India&rsquo;s GDP. The entire union budget for this year was INR 24.42 lakh crores and the fiscal deficit was around 6.2 lakh crores. This year&rsquo;s MGNREGA budget is INR 55,000 crores.

The amount of money borrowed by India&rsquo;s wealthy citizens in connivance with its officials with no intention of ever repaying it is larger than the amount that the union government spends on health, education, food and fuel subsidies, agriculture, rural and urban development, combined.&nbsp;

But this is not the end of the bad news for the country&rsquo;s ordinary citizens who still struggle for small amounts of credit to run their businesses and households. First, it is not known how much of this massive borrowing became a useful investment in the economy and how much was converted into unproductive foreign and domestic assets, as well as luxury consumption.

If the Nirav Modi case is any indication, then we may expect more the latter than the former. Second, not only have we paid once in the form of the opportunity cost of these loans, i.e. the alternative uses to which we could have put this credit, we are paying for it a second time in the form of the budget outlays on what is called bank recapitalisation. This is where the government uses its tax revenue to replace bad assets (loans that will never be repaid) with good ones. This allocation for the current budget was INR 2.11 lakh crores, larger than the allocation for many crucial development programs.

National outrage has understandably followed the latest revelations. But sadly, as expected, this has given the proponents of bank privatisation another excuse to push their agenda. Since the vast majority of bad loans in the banking system are on the books of the public sector banks, the solution seems simple. Privatise them. Make them subject to market discipline and such corruption and negligence will not occur. But this argument appealing to the power of the market to discipline finance can only be convincing to those who have been asleep through the 2008 financial crisis. The cronyism, corruption, conflicts of interest, and open fraud that were the hallmark of this crisis are very well-documented. That very few high profile convictions resulted is a testament to the power of the finance lobby in the United States and elsewhere than to the lack of evidence.&nbsp;

What makes us think that the equally, if not more, compromised Indian institutional climate will respond any better under a largely private banking sector than a public one? Privatisation of banks does not alter the fact that 1% of the richest Indians control nearly 60% of its wealth. Further, a private banking system is not the same as a competitive one. The US has the former, but no one would mistake it for the latter.

The PSU banks have to be reformed is clear. But &ldquo;reform&rdquo; is not a synonym for &ldquo;privatise.&rdquo; What we urgently need is public, accountable, and functional finance.

The country&rsquo;s permanently credit-starved micro, small and medium sector, including agriculture, can truly transform this economy if supported well. Their individual credit requirements are not high, but they are large in numbers. Such a situation is ideal for a distributed public banking system. The current high-handedness and lack of accountability in public banking is not an excuse to privatise it. It is an excuse to make it accountable locally. Something we have never attempted seriously. Banking performs the crucial function of linking savers with borrowers, those with capital to those who can use it. Further, having the power to create money by making loans, banks are endowed with one of the most powerful tools of development. There is no argument for making this incredible power beholden to elite interests. There is every argument for making it as decentralised and distributed as possible.

But what about the bad loans? Here too the choice is clear; whether to pursue those who stole the money and to retrieve it, or to pay for our theft ourselves. The answer should be obvious.

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

There are around INR 10 lakh crores worth of bad loans in the Indian banking system. This number will likely rise.

The latest banking scam, this time in the Punjab National Bank to the tune of INR 11,000 crores, is yet another reminder of just how well the Indian economy is being managed in the interests of the super-wealthy. Over the years, and particularly during the boom years of the 2000s, when employment growth was negligible and “jobless growth” became a commonly used phrase, India’s corporate elite, including some of its best-known business houses, went on a borrowing spree. They borrowed from private and public sector banks, they borrowed domestically and abroad. It is now clear that many of these loans were never intended to be repaid. The public sector banks, in particular, issued thousands of crores worth of loans without due diligence or even with active collaboration in the fraud. Starting in the early years of this decade, the Reserve Bank of India itself was under pressure to do something about the building problem and started forcing public sector banks to reveal how many such loans were on their books. This is when the true extent of the problem, long-festering, started becoming apparent. As per the recent estimates, there are around INR 10 lakh crores worth of bad loans in the Indian banking system. This number will likely rise. To gain a sense of proportion this is around 7% of India’s GDP. The entire union budget for this year was INR 24.42 lakh crores and the fiscal deficit was around 6.2 lakh crores. This year’s MGNREGA budget is INR 55,000 crores. The amount of money borrowed by India’s wealthy citizens in connivance with its officials with no intention of ever repaying it is larger than the amount that the union government spends on health, education, food and fuel subsidies, agriculture, rural and urban development, combined. But this is not the end of the bad news for the country’s ordinary citizens who still struggle for small amounts of credit to run their businesses and households. First, it is not known how much of this massive borrowing became a useful investment in the economy and how much was converted into unproductive foreign and domestic assets, as well as luxury consumption. If the Nirav Modi case is any indication, then we may expect more the latter than the former. Second, not only have we paid once in the form of the opportunity cost of these loans, i.e. the alternative uses to which we could have put this credit, we are paying for it a second time in the form of the budget outlays on what is called bank recapitalisation. This is where the government uses its tax revenue to replace bad assets (loans that will never be repaid) with good ones. This allocation for the current budget was INR 2.11 lakh crores, larger than the allocation for many crucial development programs. National outrage has understandably followed the latest revelations. But sadly, as expected, this has given the proponents of bank privatisation another excuse to push their agenda. Since the vast majority of bad loans in the banking system are on the books of the public sector banks, the solution seems simple. Privatise them. Make them subject to market discipline and such corruption and negligence will not occur. But this argument appealing to the power of the market to discipline finance can only be convincing to those who have been asleep through the 2008 financial crisis. The cronyism, corruption, conflicts of interest, and open fraud that were the hallmark of this crisis are very well-documented. That very few high profile convictions resulted is a testament to the power of the finance lobby in the United States and elsewhere than to the lack of evidence. What makes us think that the equally, if not more, compromised Indian institutional climate will respond any better under a largely private banking sector than a public one? Privatisation of banks does not alter the fact that 1% of the richest Indians control nearly 60% of its wealth. Further, a private banking system is not the same as a competitive one. The US has the former, but no one would mistake it for the latter. The PSU banks have to be reformed is clear. But “reform” is not a synonym for “privatise.” What we urgently need is public, accountable, and functional finance. The country’s permanently credit-starved micro, small and medium sector, including agriculture, can truly transform this economy if supported well. Their individual credit requirements are not high, but they are large in numbers. Such a situation is ideal for a distributed public banking system. The current high-handedness and lack of accountability in public banking is not an excuse to privatise it. It is an excuse to make it accountable locally. Something we have never attempted seriously. Banking performs the crucial function of linking savers with borrowers, those with capital to those who can use it. Further, having the power to create money by making loans, banks are endowed with one of the most powerful tools of development. There is no argument for making this incredible power beholden to elite interests. There is every argument for making it as decentralised and distributed as possible. But what about the bad loans? Here too the choice is clear; whether to pursue those who stole the money and to retrieve it, or to pay for our theft ourselves. The answer should be obvious. (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

Opinion: After Nirav Modi frauds PNB, are we to pay for our theft ourselves?

Just when many Indian banks thought the worst of their bad debt woes were behind them, new central bank rules are stoking fears that the worst of the soured-loans buildup is yet to come.

The central bank surprised the financial sector this week by halting all of its existing loan-restructuring mechanisms with immediate effect, and rolling out new rules that will push more debt defaulters into bankruptcy courts.

To force its point home, the Reserve Bank of India (RBI) set strict timelines for lenders to take action against defaulters, threatening penalties if banks failed to act in a timely manner.

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<h5>India&#39;s bad loans have nearly doubled in the past four years following an economic slow down and years of profligate lending &mdash; the combination has choked new lending and dragged on the economy</h5>
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Soured loans, which include non-performing, restructured or rolled-over loans, reached a record high of 9.5 trillion rupees ($148 billion) in the middle of last year before dipping slightly and prompting some relief among bankers that the worst was over. State-run lenders account for the bulk of these loans.

India&#39;s bad loans have nearly doubled in the past four years following an economic slow down and years of profligate lending - the combination has choked new lending and dragged on the economy.

Analysts say the actual level of bad loans is higher than the official figures suggest, pointing to central bank audits of banks, including State Bank of India, that showed non-performing loans were higher than reported for the financial year ended March 2017. Banks have also been blamed for perpetually renewing loans on soured assets.

Most of the loan-restructuring schemes that the central bank is withdrawing have seen little success. Analysts say banks will soon have to declare the loans in those schemes as non-performing loans, which will trigger the timeline for banks to take debtors to court.

That means the banking sector will have to recognise the new status of the loans and make provisions for them, said Rajkiran Rai, chief executive at state-run Union Bank of India.

&quot;When you look at the short term, yes, we will have issues with the existing accounts,&quot; Rai said.

Longer term, the RBI&#39;s measure will benefit banks, he said.

Indeed, the new rules would bring discipline to the banking sector, although provisioning costs will shoot up as more borrowers are taken to court, said R. Subramaniakumar, chief executive at Indian Overseas Bank, a state-run lender with the second-highest bad loan ratio among all banks.

&quot;Of course it&#39;s going to put pressure on bank&#39;s balance sheets,&quot; he said, adding capital injections announced by the government will help cushion the impact.

The RBI&#39;s decision to force more struggling borrowers into bankruptcy proceedings was its latest move to try to clean up India&#39;s bad loans mess.

Last year, it ordered about 40 of the country&#39;s largest debt defaulters into bankruptcy courts, demanding creditors put aside at least 50 percent of loan amounts in provisioning.

Under the new process, the RBI requires banks to figure out plans to resolve debts of defaulters with 20 billion rupees ($311 million) or more in outstanding debt by Sept. 1, or take them to bankruptcy court.

Since 50 percent provisioning will be required for these bankruptcy cases as well, the total funds that banks will have to set aside will shoot up, pressuring profits, analysts said.

Moody&#39;s Indian affiliate ICRA estimates the criteria would net 50 defaulting companies with combined outstanding debt of 2.46 trillion rupees ($38 billion), so banks&#39; credit provisions will spike.

India Ratings and Research, the local affiliate of Fitch, said banks&#39; non-performing loans and provisions will shoot up in coming months, said analyst Udit Kariwala.

Rajeev Kumar, the top government bureaucrat overseeing the banking sector, said the new rules will impact 2-3 percent of banks&#39; loan books, while provisions could rise a &quot;little&quot;, financial news service NewsRise reported.

Bank shares slid on Wednesday, with the sector index falling 1.4 percent compared with a 0.4 percent fall in the broader market.

New RBI rules are stoking the banks' fears that the worst of the soured-loans buildup is yet to come

Just when many Indian banks thought the worst of their bad debt woes were behind them, new central bank rules are stoking fears that the worst of the soured-loans buildup is yet to come. The central bank surprised the financial sector this week by halting all of its existing loan-restructuring mechanisms with immediate effect, and rolling out new rules that will push more debt defaulters into bankruptcy courts. To force its point home, the Reserve Bank of India (RBI) set strict timelines for lenders to take action against defaulters, threatening penalties if banks failed to act in a timely manner. India's bad loans have nearly doubled in the past four years following an economic slow down and years of profligate lending — the combination has choked new lending and dragged on the economy × Soured loans, which include non-performing, restructured or rolled-over loans, reached a record high of 9.5 trillion rupees ($148 billion) in the middle of last year before dipping slightly and prompting some relief among bankers that the worst was over. State-run lenders account for the bulk of these loans. India's bad loans have nearly doubled in the past four years following an economic slow down and years of profligate lending - the combination has choked new lending and dragged on the economy. Analysts say the actual level of bad loans is higher than the official figures suggest, pointing to central bank audits of banks, including State Bank of India, that showed non-performing loans were higher than reported for the financial year ended March 2017. Banks have also been blamed for perpetually renewing loans on soured assets. Most of the loan-restructuring schemes that the central bank is withdrawing have seen little success. Analysts say banks will soon have to declare the loans in those schemes as non-performing loans, which will trigger the timeline for banks to take debtors to court. That means the banking sector will have to recognise the new status of the loans and make provisions for them, said Rajkiran Rai, chief executive at state-run Union Bank of India. "When you look at the short term, yes, we will have issues with the existing accounts," Rai said. Longer term, the RBI's measure will benefit banks, he said. Indeed, the new rules would bring discipline to the banking sector, although provisioning costs will shoot up as more borrowers are taken to court, said R. Subramaniakumar, chief executive at Indian Overseas Bank, a state-run lender with the second-highest bad loan ratio among all banks. "Of course it's going to put pressure on bank's balance sheets," he said, adding capital injections announced by the government will help cushion the impact. The RBI's decision to force more struggling borrowers into bankruptcy proceedings was its latest move to try to clean up India's bad loans mess. Last year, it ordered about 40 of the country's largest debt defaulters into bankruptcy courts, demanding creditors put aside at least 50 percent of loan amounts in provisioning. Under the new process, the RBI requires banks to figure out plans to resolve debts of defaulters with 20 billion rupees ($311 million) or more in outstanding debt by Sept. 1, or take them to bankruptcy court. Since 50 percent provisioning will be required for these bankruptcy cases as well, the total funds that banks will have to set aside will shoot up, pressuring profits, analysts said. Moody's Indian affiliate ICRA estimates the criteria would net 50 defaulting companies with combined outstanding debt of 2.46 trillion rupees ($38 billion), so banks' credit provisions will spike. India Ratings and Research, the local affiliate of Fitch, said banks' non-performing loans and provisions will shoot up in coming months, said analyst Udit Kariwala. Rajeev Kumar, the top government bureaucrat overseeing the banking sector, said the new rules will impact 2-3 percent of banks' loan books, while provisions could rise a "little", financial news service NewsRise reported. Bank shares slid on Wednesday, with the sector index falling 1.4 percent compared with a 0.4 percent fall in the broader market.

For India's banks, worst of their bad-loan troubles may be still to come

The Reserve Bank of India on Tuesday came out with a revised framework for expeditious resolution of bad loans, harmonising the existing guidelines with the norms specified in the Insolvency and Bankruptcy Code (IBC).

The new guidelines have specified framework for early identification and reporting of stressed assets.

&quot;In view of the enactment of the Insolvency and Bankruptcy Code (IBC), 2016, it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets,&quot; the RBI said in a notification issued late in the evening.

Among other things, the RBI has decided to do away with the Joint Lenders&#39; Forum (JLF) as an institutional mechanism for resolution of stressed accounts also stands discontinued.

The notification further said all accounts, including those where any of the schemes have been invoked but not yet implemented, will be governed by the revised framework.

As per the revised guidelines, the banks will be required to identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMA) depending upon the period of default.

All lenders will be required to put in place Board- approved policies for resolution of stressed assets under this framework, including the timelines for resolution, it said, adding, &quot;As soon as there is a default in the borrower entity&#39;s account with any lender, all lenders - singly or jointly - shall initiate steps to cure the default.&quot;

The resolution plan (RP) may involve any actions/plans/ reorganisation including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities / investors, change in ownership, or restructuring.

The revised framework has also laid down the timelines for resolution of stressed assets.

If a resolution plan in respect of large accounts is not implemented as per the timelines specified, lenders will be required to file insolvency application, singly or jointly, under the IBC, 2016, within 15 days from the expiry of the specified timeline.

It further said all lenders will be required to submit Central Repository of Information on Large Credits (CRILC)- Main Report to the Reserve Bank on a monthly basis effective April 1, 2018.

In addition, the lenders shall report to CRILC, all borrower entities in default (with aggregate exposure of Rs 5 crore and above), on a weekly basis, at the close of business on every Friday, or the preceding working day if Friday happens to be a holiday.

The first such weekly report shall be submitted for the week ending February 23, 2018, with a view to harmonise the guidelines with the norms specified in the IBC, said the notification while withdrawing existing mechanism for dealing with the bad debt in the banking system.

The new guidelines have specified framework for early identification and reporting of stressed assets.

The Reserve Bank of India on Tuesday came out with a revised framework for expeditious resolution of bad loans, harmonising the existing guidelines with the norms specified in the Insolvency and Bankruptcy Code (IBC)

The Reserve Bank of India on Tuesday came out with a revised framework for expeditious resolution of bad loans, harmonising the existing guidelines with the norms specified in the Insolvency and Bankruptcy Code (IBC). The new guidelines have specified framework for early identification and reporting of stressed assets. "In view of the enactment of the Insolvency and Bankruptcy Code (IBC), 2016, it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets," the RBI said in a notification issued late in the evening. Among other things, the RBI has decided to do away with the Joint Lenders' Forum (JLF) as an institutional mechanism for resolution of stressed accounts also stands discontinued. The notification further said all accounts, including those where any of the schemes have been invoked but not yet implemented, will be governed by the revised framework. As per the revised guidelines, the banks will be required to identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMA) depending upon the period of default. All lenders will be required to put in place Board- approved policies for resolution of stressed assets under this framework, including the timelines for resolution, it said, adding, "As soon as there is a default in the borrower entity's account with any lender, all lenders - singly or jointly - shall initiate steps to cure the default." The resolution plan (RP) may involve any actions/plans/ reorganisation including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities / investors, change in ownership, or restructuring. The revised framework has also laid down the timelines for resolution of stressed assets. If a resolution plan in respect of large accounts is not implemented as per the timelines specified, lenders will be required to file insolvency application, singly or jointly, under the IBC, 2016, within 15 days from the expiry of the specified timeline. It further said all lenders will be required to submit Central Repository of Information on Large Credits (CRILC)- Main Report to the Reserve Bank on a monthly basis effective April 1, 2018. In addition, the lenders shall report to CRILC, all borrower entities in default (with aggregate exposure of Rs 5 crore and above), on a weekly basis, at the close of business on every Friday, or the preceding working day if Friday happens to be a holiday. The first such weekly report shall be submitted for the week ending February 23, 2018, with a view to harmonise the guidelines with the norms specified in the IBC, said the notification while withdrawing existing mechanism for dealing with the bad debt in the banking system. The new guidelines have specified framework for early identification and reporting of stressed assets.

RBI notifies revised framework to deal with bad loans

India&#39;s move to clean up the books of its banks saddled with $120 billion of sour loans will be largely unaffected by the decision of central bank chief Raghuram Rajan to step down, say bankers and government officials. 
 
As banks struggle with record levels of distressed assets, Rajan had set an ambitious March 2017 deadline for them to fully reveal the problem loans and make adequate provisions. 
 
An unprecedented asset quality review of banks ordered by the central bank led to reported bad loans surging more than 70 per cent in the six months to March. 
 
Rajan&#39;s decision to bow out in September has, however, raised questions on the fate of a clean-up seen as crucial to reviving new lending to support a nascent recovery in Asia&#39;s third-largest economy. 
 
Bankers and government officials said Rajan&#39;s successor may be less aggressive in fighting bad loans, but the general direction will remain the same. 
 
&quot;Having worked with eight (RBI) Governors, I have not seen any new incumbent turn an earlier policy, particularly relating to banks, on its head,&quot; said G. Padmanabhan, a former executive director at the RBI who currently chairs the board of third-biggest state-run lender, Bank of India. 
 
&quot;Second, and more important, this was not a one man decision and had the support of government as well,&quot; he said, although there could be some tweaks as the timeline was &quot;aggressive&quot; and banks&#39; capital needs had to be factored in. 
 
Shares in top lender State Bank of India have gained about 16 per cent since it reported March-quarter earnings on May 27, on hopes that the worst was behind it in terms of bad loans. The second biggest state-run bank, Bank of Baroda, is up about 12 per cent during that period. Two dozen lenders majority-owned by the Indian government hold the bulk of the soured loans. 
 
Deputy finance minister Jayant Sinha said recently it was prudent for the Reserve Bank of India to pursue its asset quality review of the banks, signalling government support for the clean-up. 
 
&quot;Investors of course like it. What Rajan and the RBI did was generally good, but I would say they were a bit too harsh,&quot; said one senior public sector banker, who still sees no clarity on how bad loans will be resolved. 
 
Others agree that the mechanics of resolving the issue still need to be clarified. 
 
In the absence of a strong system to buy bad loans from banks, deciding on haircuts and government capital infusion in banks may hobble resolution of the issue, said another senior banker with a state-run bank. 
 
Despite this, most remain confident that the RBI has already gone too far to reverse course. 
 
A senior policymaker who works closely with Rajan said the bank clean up exercise had been &quot;institutionalised&quot; and was on auto-mode, playing down any impact from Rajan&#39;s exit. 
 
&quot;He (Rajan) expedited things, but it was on the RBI&#39;s agenda,&quot; the official said, adding the clean-up was long overdue. 
(Reuters)

Indian banks remain unaffected by the country's central bank chief's sudden exit and focus on fixing sour loans worth $120 billion

India's move to clean up the books of its banks saddled with $120 billion of sour loans will be largely unaffected by the decision of central bank chief Raghuram Rajan to step down, say bankers and government officials. As banks struggle with record levels of distressed assets, Rajan had set an ambitious March 2017 deadline for them to fully reveal the problem loans and make adequate provisions. An unprecedented asset quality review of banks ordered by the central bank led to reported bad loans surging more than 70 per cent in the six months to March. Rajan's decision to bow out in September has, however, raised questions on the fate of a clean-up seen as crucial to reviving new lending to support a nascent recovery in Asia's third-largest economy. Bankers and government officials said Rajan's successor may be less aggressive in fighting bad loans, but the general direction will remain the same. "Having worked with eight (RBI) Governors, I have not seen any new incumbent turn an earlier policy, particularly relating to banks, on its head," said G. Padmanabhan, a former executive director at the RBI who currently chairs the board of third-biggest state-run lender, Bank of India. "Second, and more important, this was not a one man decision and had the support of government as well," he said, although there could be some tweaks as the timeline was "aggressive" and banks' capital needs had to be factored in. Shares in top lender State Bank of India have gained about 16 per cent since it reported March-quarter earnings on May 27, on hopes that the worst was behind it in terms of bad loans. The second biggest state-run bank, Bank of Baroda, is up about 12 per cent during that period. Two dozen lenders majority-owned by the Indian government hold the bulk of the soured loans. Deputy finance minister Jayant Sinha said recently it was prudent for the Reserve Bank of India to pursue its asset quality review of the banks, signalling government support for the clean-up. "Investors of course like it. What Rajan and the RBI did was generally good, but I would say they were a bit too harsh," said one senior public sector banker, who still sees no clarity on how bad loans will be resolved. Others agree that the mechanics of resolving the issue still need to be clarified. In the absence of a strong system to buy bad loans from banks, deciding on haircuts and government capital infusion in banks may hobble resolution of the issue, said another senior banker with a state-run bank. Despite this, most remain confident that the RBI has already gone too far to reverse course. A senior policymaker who works closely with Rajan said the bank clean up exercise had been "institutionalised" and was on auto-mode, playing down any impact from Rajan's exit. "He (Rajan) expedited things, but it was on the RBI's agenda," the official said, adding the clean-up was long overdue. (Reuters)

India seen pressing ahead with bank clean-up despite Rajan's exit

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