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Indian Banks Are On The Verge Of Doubling The Poor Debt After The Pandemic Hits Hard

There is a considered view in the government that bank non-performing assets (NPAs) could double to 18-20% by the end of the fiscal year

The highest government official and four big bankers said Reuters that bad loans in their banks can double the after the coronavirus crisis brought the economy to an abrupt cessation. Indeed, 9.35 trillion ($123 billion) soured credits have already been utilized by the Indian banking industry, comprising approx. 9.1 percent of its overall reserves by the end of September 2019.

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“There is a considered view in the government that bank non-performing assets (NPAs) could double to 18-20% by the end of the fiscal year, as 20-25% of outstanding loans face a risk of default,” the official with direct knowledge of the matter said.

“These are unprecedented times and the way it’s going we can expect banks to report double the amount of NPAs from what we’ve seen in earlier quarters,” the finance head of a top public sector bank told Reuters.

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The Indian finance ministry refused to make remarks, though emails asking for clarification were not immediately replied to by Reserve Bank of India and Indian Banks’ Association, the key industry entity. In the middle of a 40-day national lock-out, the Indian economy is standing still to deter the outbreak of coronavirus infections. The shutdown is being prolonged for another two weeks, although in areas largely unaffected by the outbreak, the government has started to relieve certain constraints.

In India, nearly 40,000 coronaviruses and 1,300 deaths due to COVID-19 have been reported to date, causing respiratory disease from the coronavirus.

Bankers are worried that before June or July the economy will be completely open and that loans, especially for small and medium-sized businesses, comprising almost 20% of total loan, will be among the worst impacted.

All 10 of India’s main cities are clustered in high-risk red areas with tight restrictions.

An Axis study says that the red zones which significantly contribute to India’s economy compensate for about 83% of its banks’ total loans as of December.

One of the sources, a public sector executive director said market development was sluggish and threats were raised, well before the coronavirus crisis.

“Now we have this Black Swan event which means without any meaningful government stimulus, the economy will be in tatters for several more quarters,” he said.