Bad Loans in Indian EconomySOP A5

Mentor : Dr. Deepthi Sankar Group Members :

Eldhose Markose

Febin Bastin

Gayathri Babu

Gayathri Devi

Gopalakrishnan.K.A

Content• Introduction Indian banking sector• Bad loan• Causes of Bad loan • Public sector bank • Private Sector Bank• Impacts• Solutions• Why PARA?• Other measures• Conclusion

Indian Banking Sector• With the potential to become the fifth largest banking

industry in world by 2020 ( KPMG –CII report).

• The Indian banking sectors consists of 26 public sector banks, 20 private sector banks and 43 foreign banks along with 61 Regional Rural Banks (RRBs).

• Indian banking sector is facing a severe problem-BAD LOAN.

• Credit off-take has been surging ahead over the past decade, aided by strong economic growth, rising disposable incomes, increasing consumerism and easier access to credit.• In March FY16, total credit extended surged to US$ 1,016

billion• Demand has grown for both corporate and retail loans;

particularly the services, real estate, consumer durables and agriculture allied sectors have led the growth in credit.

Bad Loans• A loan where repayments are not being made as originally agreed between the borrower and the lender, and which may never be repaid.• A loan is tagged an NPA if interest repayments do not take place in 90 days. 

Asset ClassificationAssets

Performing Assets

StandardAssets

Non Performing Assets(NPA)

Sub -StandardAssets

DoubtfulAssets

Loss Assets

Causes of Bad loans • Speculation •Willfully Default• Fraudulent practices •Diversion of funds• Internal reasons • External reasons 

Bad Loan going worse

Non-performing loan ratio (%) of large Asia-Pacific banks

Source: Bloomberg and Mint calculations 

Public Sector Bank • Total amount of NPA for public and private sector banks is around

Rs.600000 crore.

• The amount of NPA in public sector is 154 lakh crore.

• SBI is the highest position

• Public bank written off 1.54 lakh crore bad loans between April 2013

and June 2016.

Private Sector Bank • Bad loan growth level is less than public bank.

• The amount of NPA in private sector is Rs 46,000 crore.

• City Union Bank is in the highest position.

• Yes Bank is in the lowest position.

Source: Bloomberg and Mint calculations 

Impact of Bad Loans in Indian Economy

• Balance sheets decrease their Capital Adequacy• Lack of credit in the economy• GDP growth has slowed• Investor confidence in the economy decreases • Foreign investment may decrease over time

Solutions• Bad Bank

• PARA

• India’s answer to the bad loan problem

• PARA will take over the toughest accounts and reduce

debt

• Funding of PARA

Why PARA?

• Banks have been fighting shy of new lending

• Public sector banks are worst hit by bad loan problem

• High NPA rates force banks to keep lending rates high

Other measures• Recovery camps• Preference of claim• Compromise proposals•One time settlement scheme• Suit filing•Debt Recovery Tribunals

Conclusion • Reserve Bank of India (RBI) conducted an asset quality

review in the second half of 2015 • Reported bad loans on the books of Indian banks have

surged after that• Raghuram Rajan, the former RBI governor, had given banks

a deadline of March 2017 to finish cleaning up their balance sheets.

Contd..• Setting up a Bad bank is a very complex process. • Just setting up one PARA will not be enough to get the banking

sector back on the track.

Reference• Economic Times• Rediff• Trading Economics• Business Standard• India Brand Equity Foundation• Business Line• Capitaline

Q/A

Open Forum

Thank you..