India ranks fifth out of
39 major economies with a pile of bad loans, according to a recent report. At
9.9 per cent, the ratio of non-performing assets (NPA) to the total loans
collected by Indian lenders is far higher than that of banks of the United
States, United Kingdom, Germany and Japan. In fact, the NPAs of these economies
were less than 2 per cent.
India features high up
the order and is lower than only Portugal, Italy, Ireland and Greece, the
report released by Care Ratings on Dec. 28 revealed. The Insolvency and
Bankruptcy Code (IBC) and National Company Law Tribunal (NCLT) have its task
cut out to lower these numbers and make the system more robust, it added.
The Insolvency and
Bankruptcy Code was a system put in place when the government and RBI flagged
the bad loan crisis of the country. It allowed fast resolution of bad loans,
and came into effect from December 2016. On Dec. 29, 2017, the Insolvency and
Bankruptcy Code (Amendment) Bill, 2017, that debars wilful defaulters and
existing promoters from bidding for stressed assets of companies undergoing
insolvency proceedings, was passed in the Lok Sabha. The amendment seeks to
plug loopholes in the 2016 law.
The countries that had
higher NPA ratios (to the total loans) than India were Portugal, Italy, Ireland
and Greece, which along with Spain, form the PIIGS countries that have been
battling sovereign debt crises for the past few years. Spain has been ranked
below India, at 10th. Greece tops the list, with 36.4 NPA ratio while Italy has
a corresponding ratio of 16.4 per cent. The corresponding figures for Portugal,
Ireland, Russia, and Spain are 15.5, 11.9, 9.7 and 5.3 per cent.
India, unlike the PIIGS
countries in the European Union, is a growing economy. It features the highest
on the list among the BRICS nations. The study takes information from
International Monetary Fund to maintain comparability in concepts used in
calculations.
According to the Reserve
Bank of India, Gross NPA ratio of banks increased to 10.2 per cent in September
2017 compared to 9.6 per cent in March 2017. The RBI has further projected that
gross NPA ratio could be 10.8 per cent by March 2018.
High nonperforming assets
(NPAs) and slow deleveraging and repair of corporate balance sheets are testing
the resilience of the banking system, and holding back investment and growth,
the International Monetary Fund said in a report on India’s financial system
stability assessment that was released on Dec. 21.
The CARE ratings report
categorized countries with low, very low, medium, and high level of NPAs.
Australia, Canada, Hong Kong, Republic of Korea and the United Kingdom were
listed in the first category, with NPA ratio of 1 per cent, while China,
Germany, Japan, and the USA — with less than 2 per cent NPA ratio — was listed
in the second category. Growing economies like Brazil, Indonesia, South Africa
and Turkey were listed in the third category.
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