Loans

India Wrote Off $37B In Bad Notes In Past Four Years

India’s banking industry could be in trouble after the Narendra Modi government announced that $37 billion in loans have been written off by the country’s public sector banks during the past four years.

Quartz, citing a written statement from the minister of state for finance Shiv Pratap Shukla, reported that the government official said the bank write-offs are good for the banking system.

“Banks write off bad loans or non-performing assets (NPAs) at regular intervals, as it helps them clear their balance sheets and achieve tax-efficiency,” Shukla wrote. He did not disclose the names of those who defaulted on the loans. According to Quartz, the write-offs are worth close to four times the annual budget of the Nepal government.

What’s more, the number of bad loans could double if an investment bank forecast turns out to be true, noted the report. Bank of America Merrill Lynch warned in a report that around $28 billion more of loans could be bad in India.

“Of the $178 billion (around Rs11.7 lakh crore) of debt of the power sector, $53 billion (around Rs3.5 lakh crore) is already under stress. Of this, as much as $38 billion (around Rs 2.5 lakh crore) have the potential of being written off as bad loans,” Bank of America Merrill Lynch said, according to Quartz. The report noted that more than 90 percent of the underperforming loans in the power sector went to producers. Some of those borrowers have gone bankrupt since incurring the loan debt, increasing costs and slowing sales. Bank of America expects 75 percent of those loans to be written off.

The Indian government contends that the write-offs don’t mean the country’s banks won’t try to recover the loans, but an analysis of recovery actions during the past four years shows that under 10 percent of the write-offs have been recovered. The report noted that many of the loan write-offs are from corporations and account for 80 percent of the banks’ loans.

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