Next quarter: Soaring bad loans to keep banks under stress

Due to high Non-performing asset (NPA) banks have reached to the edge of the crises. The bad loans are a big headache for public sector banks.  Investors are fast dumping shares of these banks to save their hard earned money. 

NPAs are those assets of a bank which are incapable of getting returns. In last two years NPAs hit by 135 per cent from Rs 261,843 crore as per the RBI statistic 2016, it constitutes 11 percent of the gross advances of public sector banks.

According to a recently issued report by Care Ratings, the gross NPAs of nine private banks when combined have increased to 3.91 percent in March 2017 from 1.93 per cent in March 2015 of total advances.

The delay in environmental related permits affecting iron, power and steel sector, ban in mining projects, raw material price volatility has impacted the ability of industries to repay the loans and the poor recovery and use of coercive techniques by banks made the situation worse.

The NPAs in the corporate sector is much higher than the non-corporate sector.  Market observers believe that government must take strong steps to control NPAs and credit rating agencies must identify and enlist all the major defaulters and last but not the least banks must be more cautious before disbursing loans to corporate sectors.