Slowdown in Indian economy could lead to rise in bad loans: S&P
MUMBAI: Rating company Standard & Poor’s has warned that a persistent slowdown in economic growthcould lead to a rise in the bad loans in banks’ books. In a report released yesterday on “Will India be the FirstBric Fallen Angel,” S&P has expressed concern on grounds that government, “could respond by nudging the public sector banks to respond in a less commercially oriented manner.” Government controls 70% stake in PSU bank.
Government, as dominant shareholder could play a role in getting public sector banks to restructure loans to large public-sector enterprises such as Air India that run into serious financial difficulties,” said the report. Recently banks restructured Rs 22,000 crore loan extended to government owned Air India even as it has reported losses Rs 6850 crore. “In addition, a potential fall in the GDP growth rate could tempt the government to use both formal and informal means to get the banks to increase directed lending and reduce interest rates to aid borrowers in key sectors of the economy,” added the S&P report.
Recently, even the RBI deputy governor K C Chakrabarty has indicated that RBI is concerned about on rising bad loans in the economy adding that banks must improve their ability to manage asset quality.Gross bad debt rose 51% in one year to Rs 1,03,891 crore in December 2011, according to a reply to the Parliament by minister of state for finance Namo Narain Meena.
In the report released yesterday, S&P has warned that India would e among the first Bric country to loss investment grade status. The other Bric countries include Brazil, Russia and China. India is rated as BBB-, which is just one notch above speculative grade.