Indian banks&rsquo; sour loans hit a record $145.56 billion&nbsp;at the end of June, unpublished data shows, suggesting Asia&rsquo;s third-largest economy is no nearer to bringing its bad debt problems under control.

A review of Reserve Bank of India (RBI) data obtained through right-to-information requests shows banks&rsquo; total stressed loans, including non-performing and restructured or rolled over loans, rose 4.5 per cent in the six months to end-June. In the previous six months, they had risen 5.8 per cent.

While banks remain the main source of funding for India&rsquo;s companies, the stubborn bad debt problem has eaten into bank profits and choked off new lending, especially to smaller firms, at a time when an economy that depends on them is stalling.

India grew at its slowest pace in three years in April-June, a concern for the government of Prime Minister Narendra Modi, who faces elections in 2019 and has pledged to create millions of new jobs before then.

Banks are having to take higher provisions to account for more defaulters being pushed into bankruptcy. And margins are likely to be squeezed further by proposed new rules to encourage commercial banks to pass on central bank interest rate cuts.

To be sure, the bulk of India&rsquo;s sour loans are in the state banks and stem from lending to large conglomerates, especially in steel and infrastructure. But analysts say the rise in bad loans among small firms, and even retail borrowing, is worrying and will do little to encourage new loans to help fuel growth.

&ldquo;On the corporate side, we think it&rsquo;s a recognition cycle which is nearing an end,&rdquo; said Alka Anbarasu, senior analyst at Moody&rsquo;s Investor Service, referring to more bad loans being recognised as such, as banks come under pressure from the RBI and other regulators. &ldquo;But it&rsquo;s really those data points beyond corporate that are causing some worry.&rdquo;

Anbarasu forecasts weak quarters ahead for banks before profitability picks up, and several senior bankers from public sector lenders, which account for more than two-thirds of Indian banking assets - agreed the months ahead would be strained.

Stressed loans as a percentage of total loans reached 12.6 per cent at end-June, according to the RBI data, the highest level in at least 15 years.

Part of the issue for banks and the government is a strict provisioning regime, the RBI wants banks to provide for at least 50 per cent of the secured loans to companies taken to bankruptcy proceedings, and 100 per cent for the unsecured part.

A dozen of the biggest such cases account for nearly 1.78 trillion rupees, or a quarter of total non-performing assets.

For those companies, banks will need to provide 180 billion rupees on top of existing provisions, according to July estimates from India Ratings and Research, the local affiliate of Fitch Ratings.

More than 20 other sizeable companies are at risk of being taken to bankruptcy court.

Bankers say these and other pressures, including rising government bond yields that forced banks to post mark-to-market losses, have added to the squeeze, and hit new loans.

According to RBI data, new loans grew at just about 5 per cent in the year to March, the lowest growth rate in more than six decades. Several banks have already cut back their loan books to conserve capital.

&ldquo;What are they (RBI) thinking while they&rsquo;re taking these steps all at the same time?&rdquo; said a treasurer at a state-run bank, who didn&rsquo;t want to be named due to the sensitivity of the issue. &ldquo;Do they want banks to wind up their businesses, or do they want to save the banks?&rdquo;

Treasury income accounted for 22.7 per cent of banks&rsquo; operating profits in the last financial year, doubling its share from a year earlier, India Ratings estimates.

&ldquo;The almost zero treasury income will hit provisioning ability and, in turn, make it more difficult for weaker banks to give loans as capital becomes more scarce,&rdquo; said Soumyajit Niyogi, an associate director at the rating agency.

A senior policymaker, who requested anonymity as the discussions are not public, said the government would have to help to sufficiently capitalise the banks.

Fitch Ratings estimates Indian banks will need $65 billion of additional capital by March 2019 to meet Basel III global banking rules. Moody&rsquo;s expects the top 11 state lenders alone will need nearly $15 billion. The government has just $3 billion left in its budget for bank recapitalisation.

&ldquo;We think capitalisation is the biggest challenge for the banks at the moment, given that earnings will remain subdued and will not support any capital generation,&rdquo; said Moody&rsquo;s Anbarasu.

A review of Reserve Bank of India (RBI) data obtained through right-to-information requests shows banks? total stressed loans, including non-performing and restructured or rolled over loans, rose 4.5 per cent in the six months to end-June. In the previous six months, they had risen 5.8 per cent

Indian banks’ sour loans hit a record $145.56 billion at the end of June, unpublished data shows, suggesting Asia’s third-largest economy is no nearer to bringing its bad debt problems under control. A review of Reserve Bank of India (RBI) data obtained through right-to-information requests shows banks’ total stressed loans, including non-performing and restructured or rolled over loans, rose 4.5 per cent in the six months to end-June. In the previous six months, they had risen 5.8 per cent. While banks remain the main source of funding for India’s companies, the stubborn bad debt problem has eaten into bank profits and choked off new lending, especially to smaller firms, at a time when an economy that depends on them is stalling. India grew at its slowest pace in three years in April-June, a concern for the government of Prime Minister Narendra Modi, who faces elections in 2019 and has pledged to create millions of new jobs before then. Banks are having to take higher provisions to account for more defaulters being pushed into bankruptcy. And margins are likely to be squeezed further by proposed new rules to encourage commercial banks to pass on central bank interest rate cuts. To be sure, the bulk of India’s sour loans are in the state banks and stem from lending to large conglomerates, especially in steel and infrastructure. But analysts say the rise in bad loans among small firms, and even retail borrowing, is worrying and will do little to encourage new loans to help fuel growth. “On the corporate side, we think it’s a recognition cycle which is nearing an end,” said Alka Anbarasu, senior analyst at Moody’s Investor Service, referring to more bad loans being recognised as such, as banks come under pressure from the RBI and other regulators. “But it’s really those data points beyond corporate that are causing some worry.” Anbarasu forecasts weak quarters ahead for banks before profitability picks up, and several senior bankers from public sector lenders, which account for more than two-thirds of Indian banking assets - agreed the months ahead would be strained. Stressed loans as a percentage of total loans reached 12.6 per cent at end-June, according to the RBI data, the highest level in at least 15 years. Part of the issue for banks and the government is a strict provisioning regime, the RBI wants banks to provide for at least 50 per cent of the secured loans to companies taken to bankruptcy proceedings, and 100 per cent for the unsecured part. A dozen of the biggest such cases account for nearly 1.78 trillion rupees, or a quarter of total non-performing assets. For those companies, banks will need to provide 180 billion rupees on top of existing provisions, according to July estimates from India Ratings and Research, the local affiliate of Fitch Ratings. More than 20 other sizeable companies are at risk of being taken to bankruptcy court. Bankers say these and other pressures, including rising government bond yields that forced banks to post mark-to-market losses, have added to the squeeze, and hit new loans. According to RBI data, new loans grew at just about 5 per cent in the year to March, the lowest growth rate in more than six decades. Several banks have already cut back their loan books to conserve capital. “What are they (RBI) thinking while they’re taking these steps all at the same time?” said a treasurer at a state-run bank, who didn’t want to be named due to the sensitivity of the issue. “Do they want banks to wind up their businesses, or do they want to save the banks?” Treasury income accounted for 22.7 per cent of banks’ operating profits in the last financial year, doubling its share from a year earlier, India Ratings estimates. “The almost zero treasury income will hit provisioning ability and, in turn, make it more difficult for weaker banks to give loans as capital becomes more scarce,” said Soumyajit Niyogi, an associate director at the rating agency. A senior policymaker, who requested anonymity as the discussions are not public, said the government would have to help to sufficiently capitalise the banks. Fitch Ratings estimates Indian banks will need $65 billion of additional capital by March 2019 to meet Basel III global banking rules. Moody’s expects the top 11 state lenders alone will need nearly $15 billion. The government has just $3 billion left in its budget for bank recapitalisation. “We think capitalisation is the biggest challenge for the banks at the moment, given that earnings will remain subdued and will not support any capital generation,” said Moody’s Anbarasu.

India's bad loans hit record 9.5 lakh crore

The government will shortly come out with an ordinance to empower the central bank, the Reserve Bank of India, to effectively deal with the problem of mounting bad loans in the banking sector.

A proposal to amend Section 35A of the Banking Regulation Act through the ordinance route was approved by the Cabinet headed by Prime Minister Narendra Modi, sources said.

The amendment will empower the RBI to issue direction to banks to recover non-performing assets (NPAs) from loan defaulters.

Section 35A empowers the Reserve Bank to issue directions to the banks in the public interest and depositors.

Briefing reporters about the Cabinet meeting, Finance Minister Arun Jaitley said the government has taken some important decisions in respect of the banking sector.

&quot;There is a convention that when some proposal is referred to the President, then details of it cannot be disclosed till it is approved. As soon as approval comes, details will be shared,&quot; he said.

Public Sector Banks (PSBs) are saddled with non-performing assets or bad loans to the tune of a staggering Rs 6 lakh crore.

Bad loans rose by over Rs 1 lakh crore in the first nine months of last fiscal to Rs 6.07 lakh crore by December 31, 2016.

Gross NPA of Public Sector Banks (PSBs) stood at Rs 5.02 lakh crore at the end of March 2016, up from Rs 2.67 lakh crore at the end of March 2015.

The amended law will also empower RBI to set up oversight panels that will shield bankers from later action by probe agencies looking into loan recasts.

Banks have been reluctant to resolve NPAs through settlement schemes or sell bad loans to asset reconstruction companies for fear of being hauled up by investigation agencies.

Once the law is amended, the RBI will be able to give specific solutions for specific cases and also, if required, look at providing relaxation in terms of current guidelines, said a senior government official aware of the deliberations.

Last month, Jaitley had said NPA resolution mechanism was being worked out with the RBI which will put enough pressure on borrowers to settle dues.

&quot;You see, the amounts are large, but the amounts are restricted. It&#39;s not that hundreds and thousands of businesses have created this problem. The problem of big NPA is confined essentially to 30-40, at best 50 companies, and therefore, those 40-50 accounts need to be resolved,&quot; he had said.

During resolution of NPAs, several issues like finding buyers and strategic partners come up, the minister had said.

Jaitley had gone on to say that &quot;if you look at the whole structure, there are enough instruments available for settlements as far as the banking system is concerned. There are different legislations where action can be taken&quot;.

According to sources, the joint lenders&#39; forum (JLF) is expected to be overhauled to facilitate quick decision making.

Instead of being a resolution mechanism, the JLF has become a delaying tool for big defaulters because as per the guidelines, restructuring needs approval of 60 per cent of consortium lenders which more often than not eludes, sources added.

As per the existing JLF guidelines, if a restructuring package is approved by 75 per cent of creditors by value and 60 per cent of creditors by number, other banks have to go along with it.

Besides, the sources said there could be provision which will make wilful default a criminal offence.&nbsp;

(PTI) 
&nbsp;

A proposal to amend Section 35 A of the Banking Regulation Act through the ordinance route was approved by the Cabinet headed by PM Modi

The government will shortly come out with an ordinance to empower the central bank, the Reserve Bank of India, to effectively deal with the problem of mounting bad loans in the banking sector. A proposal to amend Section 35A of the Banking Regulation Act through the ordinance route was approved by the Cabinet headed by Prime Minister Narendra Modi, sources said. The amendment will empower the RBI to issue direction to banks to recover non-performing assets (NPAs) from loan defaulters. Section 35A empowers the Reserve Bank to issue directions to the banks in the public interest and depositors. Briefing reporters about the Cabinet meeting, Finance Minister Arun Jaitley said the government has taken some important decisions in respect of the banking sector. "There is a convention that when some proposal is referred to the President, then details of it cannot be disclosed till it is approved. As soon as approval comes, details will be shared," he said. Public Sector Banks (PSBs) are saddled with non-performing assets or bad loans to the tune of a staggering Rs 6 lakh crore. Bad loans rose by over Rs 1 lakh crore in the first nine months of last fiscal to Rs 6.07 lakh crore by December 31, 2016. Gross NPA of Public Sector Banks (PSBs) stood at Rs 5.02 lakh crore at the end of March 2016, up from Rs 2.67 lakh crore at the end of March 2015. The amended law will also empower RBI to set up oversight panels that will shield bankers from later action by probe agencies looking into loan recasts. Banks have been reluctant to resolve NPAs through settlement schemes or sell bad loans to asset reconstruction companies for fear of being hauled up by investigation agencies. Once the law is amended, the RBI will be able to give specific solutions for specific cases and also, if required, look at providing relaxation in terms of current guidelines, said a senior government official aware of the deliberations. Last month, Jaitley had said NPA resolution mechanism was being worked out with the RBI which will put enough pressure on borrowers to settle dues. "You see, the amounts are large, but the amounts are restricted. It's not that hundreds and thousands of businesses have created this problem. The problem of big NPA is confined essentially to 30-40, at best 50 companies, and therefore, those 40-50 accounts need to be resolved," he had said. During resolution of NPAs, several issues like finding buyers and strategic partners come up, the minister had said. Jaitley had gone on to say that "if you look at the whole structure, there are enough instruments available for settlements as far as the banking system is concerned. There are different legislations where action can be taken". According to sources, the joint lenders' forum (JLF) is expected to be overhauled to facilitate quick decision making. Instead of being a resolution mechanism, the JLF has become a delaying tool for big defaulters because as per the guidelines, restructuring needs approval of 60 per cent of consortium lenders which more often than not eludes, sources added. As per the existing JLF guidelines, if a restructuring package is approved by 75 per cent of creditors by value and 60 per cent of creditors by number, other banks have to go along with it. Besides, the sources said there could be provision which will make wilful default a criminal offence. (PTI)

India: Cabinet clears ordinance to help banks recover bad loans from defaulters

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India's bad loans hit record 9.5 lakh crore

India: Cabinet clears ordinance to help banks recover bad loans from defaulters