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India is Near the Bottom of the Global NPA List
Nov 8, 2016

India is going through a severe bad loan problem. Major banks have reported poor numbers in the recent earnings season.

For 2QFY17, most banks both public and private, have witnessed asset quality pressures which have impacted their profitability and loan growth. This has raised concerns over the end of the bad loan saga.

The problem of bad loans is indeed quite severe and when we compare it with other global peers it looks daunting.

Out of the ten major economies facing NPA problems, India is ranked seventh.

Further, according a leading financial daily, a comparison of the NPAs of 25 large Asia-Pacific banks shows that the large Indian banks have the worst NPA ratio when compared to their large cap peers in the region. For FY16, India has been the worst performer with NPAs of 4.6%. Thailand has been the second performer with NPAs of 3.2%.

The state owned banks have suffered more than its private peers. This will have serious consequences on India's overall credit growth as state-owned banks account for two-thirds of overall credit disbursed by scheduled commercial banks in India.

The overhang of bad debts has not only hit their profitability, but has also restricted their loan book growth. Given the scale of the bad loan problem, the bankers may remain cautious in granting new loans and approving new projects. This may delay India's investment cycle.

Data Source: Livemint, Equitymaster

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