Large borrowers appear to be faring better. Over the last few years, bad loans among the banks’ large borrowers have steadily declined
Jan 2, 2025 07:26 IST First published on: Jan 2, 2025 at 07:26 IST
The Indian banking system continues to record improvement across several parameters. As per the RBI’s latest Financial Stability Report, bad loans of banks have fallen to a 12-year low of 2.6 per cent in September 2024. This improvement in asset quality is being observed across all sectors. Banks have also reported a healthy increase in their profitability. Their provision coverage ratios are high and their capital position is healthy. The stress tests carried out by the RBI also suggest that even if the macroeconomic environment takes a turn for the worse, banks would remain well capitalised, with only four banks falling short of the minimum capital requirement in one adverse scenario.
There are, however, areas of concern. Particularly troubling are the signs of stress in the unsecured retail loan book with the data showing a steep increase in write-offs in this segment. As per the central bank, this “could be partly masking worsening asset quality in this segment and dilution in underwriting standards.” More than half of the new bad loans in the retail segment have, in fact, come from “slippages in the unsecured loan book.” Signs of stress are also evident in the micro-finance sector which tends to cater to low income households. The share of stressed loans has increased and “impairment remained high” among borrowers with multiple loans. Equally worrying is that the share of borrowers who have taken loans from four or more lenders has increased, indicating growing indebtedness in this segment. Within consumer credit, the report also finds that of the borrowers with a personal loan of under Rs 50,000, 11 per cent were overdue, while 60 per cent “had availed more than three loans” in the ongoing financial year — further pointing towards growing household leverage and stress in repayment. There are other indications of this as well. As per a report in this paper, gold loan NPAs surged by 30 per cent to Rs 6,696 crore as of June 2024, from Rs 5,149 three months before.
Large borrowers appear to be faring better. Over the last few years, bad loans among the banks’ large borrowers have steadily declined — from 4.5 per cent in March 2023 to 2.4 per cent in September 2024. However, loans where the principal or interest payment is overdue between 31 and 90 days rose sequentially in the September quarter. At the end of September 2024, the unhedged external commercial borrowings stood at $65.48 billion. These areas of possible vulnerabilities and pockets of stress warrant close monitoring.
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