Bad loans in the Indian banking system could soar to almost 15% of total loans by March 2021 as the coronavirus crisis leads to rising levels of household and corporate debt, the Financial Stability and Development Council said in a report published on Friday.

Indian banks have been battling rising bad loans for years but managed to get gross non-performing assets (NPAs) down to 8.5% in March, compared to 9.3% in September 2019, following strict new rules imposed by the central bank.

As India`s economy feels the impact of the COVID-19 pandemic, macro stress tests indicate that the gross NPA ratio of all banks could increase to 12.5% by next March under a baseline scenario and may escalate to 14.7% under a very severely stressed scenario, the report said. It did not give details of that scenario.

<a href="https://www.wionews.com/india-news/coffee-day-owed-472-million-by-deceased-founders-firm-report-315761">Also read|&nbsp;Coffee Day owed $472 million by deceased founder's firm: report</a>

"The pandemic has the potential to amplify financial vulnerabilities, including corporate and household debt burdens in the case of severe economic contraction," the report said.

The semi-annual report is compiled by the Financial Stability and Development Council - an umbrella group of regulators - and released by the Reserve Bank of India.

Financial sector risks

The report highlighted that relief measures for borrowers introduced as part of measures to help India`s economy through the pandemic, such as deferments of loan and interest payments for six months, may have implications for the financial health of banks, going forward.

"Nearly half of the customers accounting for around half of outstanding bank loans opted to avail the benefit of the relief measures," it stated.

The report also highlighted the problems for over 9,500 shadow banks, known as non-banking financial companies (NBFCs), in India, which have been battling a liquidity crisis over the last couple of years.

"The declining share of market funding for NBFCs is a concern as it has the potential to accentuate liquidity risk for NBFCs as well as for the financial system," the report stated.

However, the report said contagion risks through financial networks have moderated due to the higher capital buffers introduced in recent years and a shrinking interbank market.

Bad loans in the Indian banking system could soar to almost 15% of total loans by March 2021 as the coronavirus crisis leads to rising levels of household and corporate debt, the Financial Stability and Development Council said in a report published on Friday.

Bad loans in the Indian banking system could soar to almost 15% of total loans by March 2021 as the coronavirus crisis leads to rising levels of household and corporate debt, the Financial Stability and Development Council said in a report published on Friday. Indian banks have been battling rising bad loans for years but managed to get gross non-performing assets (NPAs) down to 8.5% in March, compared to 9.3% in September 2019, following strict new rules imposed by the central bank. As India`s economy feels the impact of the COVID-19 pandemic, macro stress tests indicate that the gross NPA ratio of all banks could increase to 12.5% by next March under a baseline scenario and may escalate to 14.7% under a very severely stressed scenario, the report said. It did not give details of that scenario. Also read| Coffee Day owed $472 million by deceased founder's firm: report "The pandemic has the potential to amplify financial vulnerabilities, including corporate and household debt burdens in the case of severe economic contraction," the report said. The semi-annual report is compiled by the Financial Stability and Development Council - an umbrella group of regulators - and released by the Reserve Bank of India. Financial sector risks The report highlighted that relief measures for borrowers introduced as part of measures to help India`s economy through the pandemic, such as deferments of loan and interest payments for six months, may have implications for the financial health of banks, going forward. "Nearly half of the customers accounting for around half of outstanding bank loans opted to avail the benefit of the relief measures," it stated. The report also highlighted the problems for over 9,500 shadow banks, known as non-banking financial companies (NBFCs), in India, which have been battling a liquidity crisis over the last couple of years. "The declining share of market funding for NBFCs is a concern as it has the potential to accentuate liquidity risk for NBFCs as well as for the financial system," the report stated. However, the report said contagion risks through financial networks have moderated due to the higher capital buffers introduced in recent years and a shrinking interbank market.

Indian banks' bad debt ratio could hit nearly 15% by March in worst-case scenario: Report

Indian Banks' Association (IBA) has submitted a list of recommendations to both the government and the Reserve Bank of India (RBI) to ease the financial burden faced by various sectors due to the outbreak of coronavirus pandemic.

Some of the key recommendations included blanket credit guarantee for MSME loans, one-time loan restructuring for sectors hit hard by COVID-19 and raising of moratorium and relief for the NBFC sector, sources said.

As per the RBI's norms, restructuring of loans is prohibited and resolution of default cases are dealt as per the Insolvency and Bankruptcy Code (IBC).

Based on the representation made by various industry associations, a detailed and comprehensive list of suggestions have been submitted to the government and the RBI for addressing problems faced by various sectors including MSME in general and banking sector in particular, sources said.

It is for the regulator and the government to take an informed decision on those suggestions depending on their assessment and keeping in mind prudential norms, sources added.

However, the IBA in its meeting last week was of the view that this is an extraordinary situation and response to this should be extraordinary.

Bankers believed that some safety net has to be created for both industry and banks for survival first, sources said, adding, revival would follow.

Various estimates indicate a drastic reduction in GDP growth forecast for the current fiscal due to the impact of COVID-19 and consequent lockdown.

As per the World Bank's latest assessment, India is expected to grow 1.5 per cent to 2.8 per cent. Similarly, the IMF projected a GDP growth of 1.9 per cent for India in 2020, as the global economy hits the worst recession since the Great Depression in the 1930s.

Earlier this month, SBI Chairman Rajnish Kumar had said that the IBA will request for raising the loan moratorium period from the existing three months to 5-6 months depending on the evolving situation.

Kumar, who is also the chairman of the IBA, had said that there was also demand government guarantees against loans to certain risk-prone sectors to revive credit flow in the economy post lockdown.&nbsp;

Indian Banks' Association (IBA) has submitted a list of recommendations to both the government and the Reserve Bank of India (RBI) to ease the financial burden faced by various sectors due to the outbreak of coronavirus pandemic.

Indian Banks' Association (IBA) has submitted a list of recommendations to both the government and the Reserve Bank of India (RBI) to ease the financial burden faced by various sectors due to the outbreak of coronavirus pandemic. Some of the key recommendations included blanket credit guarantee for MSME loans, one-time loan restructuring for sectors hit hard by COVID-19 and raising of moratorium and relief for the NBFC sector, sources said. As per the RBI's norms, restructuring of loans is prohibited and resolution of default cases are dealt as per the Insolvency and Bankruptcy Code (IBC). Based on the representation made by various industry associations, a detailed and comprehensive list of suggestions have been submitted to the government and the RBI for addressing problems faced by various sectors including MSME in general and banking sector in particular, sources said. It is for the regulator and the government to take an informed decision on those suggestions depending on their assessment and keeping in mind prudential norms, sources added. However, the IBA in its meeting last week was of the view that this is an extraordinary situation and response to this should be extraordinary. Bankers believed that some safety net has to be created for both industry and banks for survival first, sources said, adding, revival would follow. Various estimates indicate a drastic reduction in GDP growth forecast for the current fiscal due to the impact of COVID-19 and consequent lockdown. As per the World Bank's latest assessment, India is expected to grow 1.5 per cent to 2.8 per cent. Similarly, the IMF projected a GDP growth of 1.9 per cent for India in 2020, as the global economy hits the worst recession since the Great Depression in the 1930s. Earlier this month, SBI Chairman Rajnish Kumar had said that the IBA will request for raising the loan moratorium period from the existing three months to 5-6 months depending on the evolving situation. Kumar, who is also the chairman of the IBA, had said that there was also demand government guarantees against loans to certain risk-prone sectors to revive credit flow in the economy post lockdown.

Double moratorium period to 6 months, provide credit guarantee for MSME loans: IBA to RBI

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Indian banks' bad debt ratio could hit nearly 15% by March in worst-case scenario: Report

Double moratorium period to 6 months, provide credit guarantee for MSME loans: IBA to RBI