Is The Next Cri­sis Loom­ing?

THE RE­CENT BUILD- UP OF RE­TAIL BAD LOANS COULD BE A SIGN OF TROU­BLE AHEAD.

Business Today - - THE BUZZ - Vivek Kaul is the au­thor of Easy Money tril­ogy BY VIVEK KAUL

In­dia could be head­ing to­wards a re­tail bank­ing cri­sis. In FY2017/2018, re­tail loans amounted to around half (48.6 per cent, to be pre­cise) of the loans given by banks (non-food credit). In 2013/2014, they ac­counted for just 17 per cent. Cur­rently, banks are not in­ter­ested in lend­ing to cor­po­rates. De­faults made by the in­dus­trial sec­tor are re­spon­si­ble for nearly three-fourths of the over­all bad loans plagu­ing the pub­lic sec­tor banks. As a re­sult, only 3.3 per cent of the to­tal bank lend­ing went to the in­dus­trial sec­tor in 2017/2018.

Typ­i­cally, when lend­ing by banks to a spe­cific sec­tor rises dra­mat­i­cally within a short pe­riod, the qual­ity of lend­ing falls. With the fall in qual­ity, de­faults go up and bad loans rise. As on Septem­ber 30, 2017, re­tail bad loans of banks amounted to 2.1 per cent of the out­stand­ing re­tail loans. One of the key rea­sons why the over­all re­tail bad loans con­tinue to re­main low is that the re­tail bad loans of the State Bank of In­dia are very low at 1.33 per cent.

But the trou­ble with av­er­ages is that they hide more than they re­veal. Even though the over­all re­tail bad loans re­main low, the same is not true for many pub­lic sec­tor banks. Take a look at the ta­ble be­low.

As is clear from the ta­ble, the bad loans ra­tio in re­tail lend­ing has risen be­tween March 2014 and De­cem­ber 2017 in most cases. For UCO Bank, it has risen from 2.29 per cent to 7.73 per cent. In com­par­i­son, pri­vate banks are do­ing bet­ter al­though lat­est data is not avail­able in all cases. It is sim­i­lar to what ICICI Bank had to go through in the post-fi­nan­cial cri­sis years. The re­tail non-per­form­ing as­sets (NPAs) of the bank peaked at 9.84 per cent as on March 31, 2011.

The re­tail NPA story of the pub­lic sec­tor banks is play­ing out qui­etly be­cause ev­ery­one is busy fo­cussing on the bad loans that have ac­cu­mu­lated due to bank loans to in­dus­try. Al­though re­tail bad loans can never reach the level of bad in­dus­trial loans be­cause re­cov­ery on de­fault is much eas­ier, such oc­cur­rences must be nipped in the bud be­fore they be­come big­ger than they cur­rently are, and cost the gov­ern­ment thou­sands of crores in bailouts again.

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