Punjab National Bank's December quarter result has put the spotlight back on the problem of bad loans that has dogged India's banking sector for the last three years. The country's banking system is struggling under $100 billion (over Rs 6.5 lakh crore) of stressed loans (including restructured loans), hurting economic growth, analysts say.
Here is your 10-point cheat- sheet to the bad loan issue:
1) Punjab National Bank, India's fourth-biggest state-run lender by assets, posted a 93 per cent fall in profit in Q3 as its provisions for bad loans doubled to Rs 3,776 crore. Central Bank, the eighth-biggest state-run lender, smaller lenders Allahabad Bank and Dena Bank all reported net losses in the December quarter due to surge in bad loans. (Read)
2) State-run banks, which account for over 70 per cent of all outstanding bank loans, have borne the brunt of burgeoning bad loans. But private lenders have not been immune too. ICICI Bank - India's biggest private lender by assets - tripled its provisions for loan losses in Q3 after bad loans widened to 4.72 per cent of total advances.
3) Both Punjab National Bank and ICICI Bank expect the asset quality issues to hit profitability in the current March quarter too. "The surgery is not over," PNB Chief Executive Usha Ananthasubramanian said. "The next quarter as well ... I should say the clean-up process is underway," she said of the three months to March.
4) Indian banks have been struggling with asset quality issues for many quarters now, but the recent spike in bad loans has been attributed to the Reserve Bank's order asking lenders to treat some stressed borrowers as non-performing even if they have not defaulted yet.
5) The RBI's directions followed Governor Raghuram Rajan's call for cleanup of bank balance sheets by March 2017. The banks have been asked to make required provisions during the third and fourth quarters of this fiscal year ending in March.
6) Over the last three years (FY 2012-15), a whopping Rs 1.14 lakh-crore of bad loans have been written off by 27 public sector banks. A lot of loans that have been written off originated in 2009-12, when economic growth came under severe stress due to the global financial crisis. (Read)
7) A large part of the loans being written off currently are from the steel and power sectors. Steelmakers are facing sharp price declines and increased competition from higher imports from China, while non-performing loans in the power sector are on account of higher exposure to state distribution companies.
8) The government last year announced a revamp plan, 'Indradhanush', to infuse Rs 70,000 crore in state-owned banks over four years, while they will have to raise a further Rs 1.1 lakh crore from the markets to meet their capital requirements in line with global risk norms Basel III.
9) The upcoming budget must tackle the problem of bad loans, analysts say. "The most important reason why banks are reluctant to lend is because of their non-performing assets, so the issue of NPAs will have to be settled," said former Finance Minister Yashwant Sinha. (Watch)
10) Rising bad loans and falling profitability have hit market capitalization of state-run banks. The PSU Bank index of National Stock Exchange, that comprises top state-run lenders, has plunged 42 per cent in last one year as compared to 15 per cent fall in the Nifty index.
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