India Ranked 5th Among Countries With Bad Loans: Report

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.