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Major Asian stock markets have opened the day on a negative note. The stock markets in Hong Kong and Japan are trading lower by 0.35% and 3.11%, respectively. Major indices in Europe ended their session on a negative note. US markets also ended their previous session in the red. The rupee is trading at 66.56 per US$.
Indian stock markets have opened the day on a firm note. The BSE Sensex is trading up by 112 points (up 0.5%) and NSE Nifty is trading up by 25 points (up 0.3%). The BSE Mid Cap and the BSE Small Cap indices are trading in the green, up by 0.1% and 0.2%, respectively. Sectoral indices have opened the day on a positive note with stocks from realty, healthcare and metal sector leading the gains.
As per an article in Economic Times, scheduled commercial banks credit grew by 9.7% YoY in the quarter ended December 2015. This was helped by higher growth in advances of private sector banks. Further, in terms of total number of credit accounts, banking sector witnessed a growth of 12.2% during the quarter on a YoY basis.
The Reserve Bank of India (RBI) stated that more than four-fifth of the total credit accounts of the banking sector was concentrated in agriculture and personal loan segment. However, the concentration in terms of outstanding credit in these segments was only 30%.
The central bank further stated that the proportion of credit in terms of the amount outstanding to industry was highest at 42% during the third quarter of FY16.
So while the credit growth has witnessed an uptick, the problem of bad loans has got worse than earlier. The reason behind the issue of rising bad loans can be attributed to the increase in wilful defaulters. It was noted that the number of wilful defaulters' who have not repaid their loans to public sector banks (PSBs) despite having the ability to do so shot up by 38% in 3 years. The number of wilful defaulters stood at 7,686 at the end of December 2015 as against 5,554 in December 2012.
Further, the amount involved in these cases too shot up by 2.4 times to Rs 661 billion, compared to around 277 billion earlier.
Minister of state for finance Jayant Sinha said that there were 1,365 borrower accounts having outstanding of Rs 5 billion and more at the end of December 2015. He said the government has taken specific measures to address issues in sectors such as infrastructure, steel and textiles, where instances of NPAs are high.
The number of rising wilful defaulters is seen rising as lenders finally started issuing the tag amid rising bad loans troubling the Indian economy. The issue came to the fore after a surge in NPAs in October-December 2015 due to the recognition of certain stressed accounts by banks as per RBI norms.
One of our articles discusses how the government can deal with wilful defaulters.
One shall note that the banking industry witnessed a slowdown in FY16, impacted by the swings in the economy. On one hand, the dampened credit offtake reduced its interest rate income. At the same time increased loan defaults led to increased provisioning and reduced earnings for the banks. Not to forget piling up of bad debts, particularly of public sector banks, that constrained their capital strength.
In another news update, it was reported that outstanding dues of state utilities payable to central generating power stations have increased 16% in the last one year. With this, the amount of dues has touched around Rs 222 billion.
This was witnessed despite about 18 states agreeing to join Ujwal Discom Assurance Yojana (UDAY) and eight states issuing bonds of about Rs 1,000 billion recently.
One shall note that the UDAY scheme was brought up by the government to bring a turnaround in the State Electricity Boards (SEBs) that have been caught up in a vicious cycle of high debt and operational losses. The scheme allows power distribution companies (discoms) in select states to convert their debt into state bonds. Further, the part of debt not taken over the DISCOMs shall be converted by banks into bonds with a cap on the interest rates.
The effect of this initiative will take time to reflect on the financial of power utilities. However, the above data points out that it has failed to provide the much needed relief so far. Having said that, one shall watch out further steps that the government takes to make the scheme successful.
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