India's bank bad loans shrink from record peak

India's stock of soured bank loans shrank slightly in the quarter to 30 September last year, the first pullback since a drive to clean up record levels of non-performing assets (NPAs) began in 2015 and signalling that tighter rules and the insolvency and bankruptcy code may be starting to show results.

Bad loans, which include NPAs as well as restructured or rolled-over loans, eased 0.4% from three months earlier to Rs9.46 trillion ($148.3 billion) at the end of September, according to unpublished RBI data reviewed by Reuters.

The last data seen by Reuters showed bad loans hit a record Rs9.5 trillion as of endJune last year, accounting for 12.6% of total loans. The new data shows that the ratio declined to 12.2% in the period to end-September.

That would be the first decline in soured assets since at least 2015, according to quarterly data collected by Reuters. On an annual basis, stressed assets have risen steadily since the year to March 2006.

Banks have seen their bad loans nearly double in the past four years as a prolonged economic slowdown took its toll on the ability of companies to repay debt. Profligate lending and poor due diligence have also been blamed for the surge.

In late 2015, the Reserve Bank of India (RBI) began a major asset quality review amid allegations that banks were hiding the extent of the bad debts on their books.

The central bank last year ordered banks to push some 40 of the country's biggest corpo- rate defaulters into bankruptcy proceedings through greater powers given to it as part of the government's banking reforms programme. The government has also announced a $33 billion bank recapitalisation plan of public sector banks that account for the bulk for the soured loans.

"The view is that the stressed assets ratio will not go up sharply from current levels. We expect asset-quality parameters to stabilise in due course before moving lower," said Jobin Jacob, an associate director at Fitch Ratings.