Indian banks successfully dent bad loans in 2018

The NPL ratio fell to 10.8% from 11.5% the previous year.

The non-performing loan (NPL) ratio of Indian banking sector in the nine months to December 2018 fell to 10.8% from 11.5% the previous year amidst better recoveries and lower fresh slippages, according to an estimate from Fitch Ratings. 

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In Q1, public state banks (PSBs) recovered $5.23b (INR365b) in non-performing assets, indicating a slight recovery in the sector. Despite the gradual progress, provisionoing pressures persisted with 14 of 21 PSBs booking losses as credit costs continued to eclipse weak income buffers.  

“Complex legal proceedings have led to delays in the resolution of certain large NPLs among the system’s $150 billion in NPLs (FY18), stretching recoveries well beyond the stipulated timeframe of 270 days,” Fitch Ratings said in a report. 

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Banks were allowed a one-time restructuring of SME loans under RS250m in February which preceded the government’s planned $7b injection to help banks meet minimum capital norms.

The capital boost, however, is unlikely to translate into credit gains as banks still have to meet a 0.625% capital conservation buffer in FY20 whilst negotiating more provisions. Banks still need an additional $23b in 2019 just to meet regulatory norms as much of the capital has already been absorbed by loan loss provisions, according to an earlier report from Fich Ratings.