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RETAIL BANKING | Tony Chua, India
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India banks’ bad debts rise further

Experts said NPA’s may grow more behind rising interest rates and demand slowing in pace with the economy.

Indian banks’ bad debts are rising as companies have started feeling the pinch of high interest rates. Banks may also have to restructure loans that borrowers are finding difficult to service because their businesses have been affected by a slowing economy.

The growth in non-performing assets (NPAs) as a percentage of banks’ loan portfolio was almost at a five-year high in the April-June quarter and analysts said it could rise even further because there is a strong chance that interest rates may harden in the absence of any sign of inflation coming down.

When money becomes costlier, incomes of companies go down as demand from consumers slows and, at the same time, their interest burden also goes up, leading to incidents of loan defaults.

In the April-June quarter, the banking industry’s gross NPAs rose by 7.64%— from Rs. 60,685 crore ($13.69 billion) in the January-March quarter to Rs. 65,318 crore ($14.74 billion). This has been the highest growth of bad loans in a quarter since July-September 2006.

The growth in net NPAs, after provisioning, in the April-June quarter was 9.62%, at Rs. 27,311 crore ($6.16 billion), up from Rs. 24,914 crore ($5.62 billion) in the previous quarter.

For this analysis, the financials of 35 of 40 listed banks have been taken into account. State Bank of India (SBI), the nation’s largest lender, is yet to announce its June quarter earnings and comparable figures for past 20 quarters are not available for four banks. In the January-March quarter, SBI’s gross NPAs grew to 3.28% from 3.17% in the previous quarter.

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