Indian banks' bad loans mount to over Rs9,00,000 cr in June

Bad loans of India's banking sector is estimated to have crossed Rs9,00,000 crore (around $138 billion) by June, growing 15 per cent in the first six months of the year 2016, data available with the Reserve Bank of India (RBI) showed.

A Reuters report quoting data obtained under right-to-information request showed stressed assets of banks stood at Rs9,22,000 crore ($138.5 billion) at the end of June 2016, against Rs8,06,000 crore ($121 billion) at the end of December 2015.

And, with the Reserve Bank relaxing provisioning norms, the bad debt problem of banks is likely to become messier, making a clean-up effort difficult in the near term.

Also, with the value of the assets of large corporates being held as securities or collateral getting eroded, any effort to defuse the bad loan problem could only worsen the NPA problem, say analysts.

Worse still, there aren't any credible investors to buy out those companies and assets. The debt-for-equity swap scheme unveiled by the central bank has found few takers, although a host of foreign investors, including foreign funds, have evinced interest in investing in distressed assets of Indian banks.

The central bank and the government have now announced new classification norms for stressed assets of banks to tackle problem, albeit with little success yet.

The central bank has set a March deadline for banks to rework their accounts to fully reveal problem loans. But, with the new classification norm banks get more time to fully disclose bad loans.

Stressed assets earlier included both non-performing loans (NPLs) or those loans that have not been serviced for 90 days or more as also restructured or rolled over loans, where banks have eased interest rates or the repayment period.

However, under the new classification, restructured loans can again be divided into serviceable and non-serviceable debt and the serviceable part can be added to performing assets category.

With nearly two dozen state-owned banks account for 70 per cent of total advances by banks and 88 per cent of the bad loans, the present rate of equity infusion will not help these banks to meet tougher global banking rules known as ''Basel III".

PSU banks already need about Rs180,000 crore ($27 billion) in new equity capital by March 2019. This has to be met along with fixing the mountain of bad debt weighing down on banks to revive a faltering credit and investment growth and put the economy on a firm footing.

But the surge in stressed loans will mean banks need even more cash to shore up their balance sheets and with their limited ability to borrow from the market,  most of the funds will have to come from the government.