Banks in India are reeling under the effect of bad loans, with a report indicating that bad loans grew by 4.5 per cent in the first six months of the year, touching $145.56 billion (Rs.9.5 trillion). The data, availed through a RTI request, could force banks to take stringent measures to control this number.
While large business, primarily in infrastructure and steel are the biggest defaulters, smaller companies will be the worst hit if banks adopt new lending policies, having an impact on the overall economy. To put this into context, just over 12 cases contribute to around 25 per cent of bad loans. Failure of new/smaller organisations to get loans could impact job creation, adding a further dent in the economic growth of the country.
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State banks are the worst hit when it comes to bad loans, having suffered huge losses in the past on account of them. Their non performing assets stood at Rs.6,14,872 crore during 2016.
SBI has already initiated measures to combat bad loans, with the new chairman Rajnish Kumar creating a special division for the same. An MD level officer will head this division, called the Stressed Assets Resolution Group.
SBI has seen its non-performing assets grow from 7.40 per cent to 9.97 per cent for the period March-June 2017. Agricultural bad loans amounted to Rs.17,988 crore during the same period.
India currently ranks third in Asia in terms of loan defaults, with 9.2 per cent of all loans going unpaid in 2016. This number was 2.67 per cent in 2011.
According to estimates by Fitch Ratings, banks in the country will require additional capital to the tune of around $65 billion in the next two years. The government, however, has a capacity of just $3 billion in its budget for the same, signalling tough times for both lenders and borrowers.