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Mumbai India expects bad debt at its banks to double after the coronavirus crisis suddenly halted the economy, a senior government official and four of the top bankers told Reuters.
Indian banks are already grappling with Rs 9.35 lakh rupees ($ 123 billion) of impaired loans, equivalent to approximately 9.1% of their total assets at the end of September 2019.
“There is a considered view in the government that non-performing bank assets (NPA) could double to 18-20% at the end of the fiscal year, as 20-25% of outstanding loans face default risk,” he said. the official. with direct knowledge of the said matter.
A further increase in bad debt could affect credit growth and delay India’s recovery from the coronavirus pandemic.
“These are unprecedented times and, in the way that they are happening, we can expect banks to report twice the amount of NPA than we have seen in previous quarters,” the chief financial officer of a major bank told Reuters. from the public sector.
The official and the bankers declined to be named as they were not officially authorized to discuss the matter with the media.
India’s finance ministry declined to comment, while the Reserve Bank of India and the Association of Banks of India, the industry’s leading body, did not immediately respond to emails seeking comment.
The Indian economy has stalled amid a 40-day national blockade to stem the spread of coronavirus cases.
The blockade has now been extended for another two weeks, but the government has begun easing some restrictions in districts that are relatively unscathed by the virus.
So far, India has recorded almost 40,000 cases of coronavirus and more than 1,300 deaths from COVID-19, the respiratory disease caused by coronavirus.
“RIDE ON THE TIGER”
Bankers fear the economy is unlikely to fully open before June or July, and loans, especially those from small and medium-sized businesses that make up almost 20% of total credit, may be among the worst affected.
This is because India’s 10 largest cities fall into high-risk red zones, where restrictions will remain tight.
A report by Axis Bank said that these red zones, which contribute significantly to the Indian economy, represent approximately 83% of the total loans granted by their banks as of December.
One of the sources, the executive director of a public sector bank, said economic growth had been slow and risks had increased, even before the coronavirus crisis.
“We now have this Black Swan event, which means that without any significant government stimulus, the economy will be in tatters for several more quarters,” he said.
McKinsey & Co predicted last month that the Indian economy could contract about 20% in the three months through June, if the blockade were extended to mid-May, and growth in the fiscal year would likely fall from 2% to 3%.
Bankers say the only way to stop the sharp rise in bad loans is if the RBI significantly relaxes bad asset recognition rules.
Banks have asked the central bank to allow all loans to be classified as NPA only after 180 days, which is double the current 90-day window.
“The blockade is like riding the tiger, once we lower it, we will be in a difficult position,” a senior private sector banker told Reuters.
