Rise in bad loans, credit shocks can wipe out a quarter of India’s banking capital and this is dangerous
Advertisement
The Reserve Bank of India (RBI) has warned the Indian banking system is at the risk of losing a quarter of its capital, if the bad loans and credit stress continued.
The RBI, in its half-yearly Financial Stability Report (FSR), stated that if top borrowers default, the extreme stress will dent the state lenders the most.
Thebad loans have been on a rise since March, but the RBI also mentioned the banks were well positioned to face liquidity risks.
As per the report, the Banking Stability Indicator (BSI) shows that the risks to the banking sector have sharply increased since the publication of the previous FSR, adding a trend analysis ofBSI suggests that stability conditions in the banking sector which started deteriorating in mid-2010 have now worsened significantly.
The report also says that not only state lenders but non-banking finance companies, insurers, mutual funds will also be hurt.
The report underlined the gross bad loans may jump to 9.3% of the total from 7.6% in March under extreme stress and the state-run lenders may be worst hit with gross NPAs rising to 11% by March 2017 from 9.6% in March 2016.
While the overall economic slowdown is being blamed for the surge in bad loans, the share of big borrowers was disproportionately higher, it said. Large borrowers' share of gross bad loans jumped to 86.4% from 83.4% of the total and their share of total loans increased to 58% from 56.8% in September 2015, it said.
"While concerns emanating from the significant concentration of large exposures in banks books are justified in the current milieu, the challenge is to shift a part of the resource allocations to bond financing without impacting aggregate allocative efficiency and economic welfare," the report said.
It stated the weak finances may keep banks from expanding credit, needed to fund investment as the government seeks to boost economic growth.
Advertisement
The RBI, in its half-yearly Financial Stability Report (FSR), stated that if top borrowers default, the extreme stress will dent the state lenders the most.
The
As per the report, the Banking Stability Indicator (BSI) shows that the risks to the banking sector have sharply increased since the publication of the previous FSR, adding a trend analysis of
The report also says that not only state lenders but non-banking finance companies, insurers, mutual funds will also be hurt.
Advertisement
While the overall economic slowdown is being blamed for the surge in bad loans, the share of big borrowers was disproportionately higher, it said. Large borrowers' share of gross bad loans jumped to 86.4% from 83.4% of the total and their share of total loans increased to 58% from 56.8% in September 2015, it said.
"While concerns emanating from the significant concentration of large exposures in banks books are justified in the current milieu, the challenge is to shift a part of the resource allocations to bond financing without impacting aggregate allocative efficiency and economic welfare," the report said.
It stated the weak finances may keep banks from expanding credit, needed to fund investment as the government seeks to boost economic growth.
Advertisement
- A couple accidentally shipped their cat in an Amazon return package. It arrived safely 6 days later, hundreds of miles away.
- A centenarian who starts her day with gentle exercise and loves walks shares 5 longevity tips, including staying single
- 2 states where home prices are falling because there are too many houses and not enough buyers
- "To sit and talk in the box...!" Kohli's message to critics as RCB wrecks GT in IPL Match 45
- 7 Nutritious and flavourful tiffin ideas to pack for school
- India's e-commerce market set to skyrocket as the country's digital economy surges to USD 1 Trillion by 2030
- Top 5 places to visit near Rishikesh
- Indian economy remains in bright spot: Ministry of Finance
- JNK India IPO allotment date
- JioCinema New Plans
- Realme Narzo 70 Launched
- Apple Let Loose event
- Elon Musk Apology
- RIL cash flows
- Charlie Munger
- Feedbank IPO allotment
- Tata IPO allotment
- Most generous retirement plans
- Broadcom lays off
- Cibil Score vs Cibil Report
- Birla and Bajaj in top Richest
- Nestle Sept 2023 report
- India Equity Market