Indian banks plagued with significant amounts of NPLs

Gross NPL ratio increased sharply to 7.6% in March.

According to BMI Research, Indian banks will remain plagued with significant amounts of NPLs, and as a result, the ability of banks to extend credit to productive sectors of the economy will remain hampered, which will be one of the factors preventing the Indian economy from expanding at a faster rate. 

Here's more from BMI Research:

While Indian banks are facing a challenging environment, they are at the later stage of the NPL cycle (as compared with China), as the Reserve Bank of India (RBI) has been pushing banks to fully clean up their balance sheets by March 2017.

Indeed, Indian banks have been reclassifying restructured standard advances as non-performing, and according to the Financial Stability Report released by the central bank in June, the gross NPL ratio increased sharply to 7.6% in March, from 5.1% in September 2015.

While the recognition of NPLs will be particularly negative for the profitability of Indian public sector banks (PSBs) over the short-term, it will likely put them on a much stronger footing over the long -term amid government reforms through a seven-pronged plan.

For example, the government aims to recapitalise the Indian PSBs by infusing INR700bn over the course of next four years (by FY20 18 /19 [April-March]) while attempting to improve the management practices of these banks .