World's worst bad-loan mess set to worsen India's Money crunch

World’s worst bad-loan mess set to worsen India’s Money crunch

More than 2.4percent of total loans in India’s banking system might be under stress in addition to the 9.6% bad debt ratio as of June, the highest among major economies, Credit Suisse estimates reveals. A prolonged shadow-banking catastrophe and hurdles in bankruptcy rules are set to maintain India atop the world’s worst bad-debt heap, even as Italy, which held the title before, quickens the cleanup of its creditors.

Warned that more loans may sour in the Asian country’s banking system. More than 2.4percent of total loans in India’s banking system might be under stress in addition to the 9.6% bad debt ratio as of June, the highest among major economies, Credit Suisse estimates reveals. Italy, on the other hand, has almost halved its ratio to 8.5percent in the past three years.The failure to slash worried assets is undermining India’s efforts to revive economic growth that has cooled to a six-year low. A money crunch in the shadow-banking industry that began with the collapse of IL&FS Group this past year and the delays in the bankruptcy procedure are adding to the challenges faced by banks as they want to clean up their balance sheets.

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Of the country’s 12 largest delinquent borrowers that Reserve Bank of India requested lenders to drive to bankruptcy in 2017, only six have been solved thus far, data compiled by Bloomberg demonstrates. The delays highlight impediments to the procedure including conflicting regulations and lack of settlement infrastructure, which can be derailing a 270-day settlement deadline specified by the bankruptcy law.

Bolstering the pace of settlements is vital for Prime Minister Narendra Modi’s attempts to spur new credit and jump-start the $2.7 trillion market after growth slumped to 5 percent in the quarter through June. India has announced a slew of measures such as consolidating weak state-run banks with more powerful ones in recent weeks to undo the economic downturn and prevent a surge in bad loans.

Meanwhile, Italian banks such as Banco BPM SpA., Unicredit SpA and Intesa Sanpaolo have cut the amount of poisonous debt in their balance sheets by nearly half from a peak of 341 billion euros in 2015, data compiled by PricewaterhouseCoopers shows.

“Unlike in Italy, banks in India have been reluctant to market bad loans down at discounts to clean up the heap.”

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