Private banks’ new loans outpace PSBs’ for first time

June 8: India’s privately owned banks are extending new loans faster than their state-run rivals for the first time ever, as government lenders struggle to bring surging bad loans under control.

New credit from private lenders amounted to 3.5 trillion rupees ($52.4 billion) in the year to March 31, taking their outstanding advances to 17.9 trillion rupees, while state banks’ loans grew 2 trillion rupees to 51.2 trillion rupees, according to a finance ministry document, a copy of which was reviewed by Bloomberg News. Finance ministry spokesman D.S. Malik didn’t respond to two calls to his mobile phone on Tuesday seeking comment.

Thestressed-loanratiofor state banks climbed to a 16year high of 14.34 percent in the year through March, according to the document. Surging delinquent loans and inadequate risk buffers at India’s government-controlled lenders, which account for more than 70 percent of loans in the nation’s banking system, have been hindering Prime Minister Narendra Modi’s attempts to rev ive credit growth in Asia’ s third-largest economy.

“Private sector banks will continue to take away market share from state-run banks in coming years,” Siddharth Purohit, a Mumbaibased analyst at Angel Broking Ltd., said by phone. “With limited capital and high bad loans, most staterun banks are no tina position to focus on loan growth .” The private-sector banks’ faster loan growth is in line with a May 2014 estimate from a central bank appointed committee, which predicted that the lenders’ share of total Indian banking assets will rise to 32 percent by 2025, from 12.3 percent in 2000.

Modi needs to revive bank lending as he strives to maintain the fastest growth rate among the world’s major economies. Indian credit grew 9.8 percent in the 12 months through May 13, compared with an average of about 14 percent over the last five years, fortnightly central bank data compiled by Bloomberg show.

Timely capital infusions into constrained public sector banks will aid credit flow, the Reserve Bank of India said in its monetary policy statement on Tuesday. Rules requiring government stakes of at least 51% have curtailed state banks’ ability to sell shares, while an audit of loan books by the RBI uncovered more soured debt, making them less capitalised than privatelyowned lenders.

While some investors had anticipated the sixmonth-long central-bank audit, which ended on March 31, to result in higher nonperforming-asset disclosures, the scale of losses and statements from bank executives highlighting the uncertain outlook for bad debt have surprised analysts.