RBI report: surge in banking debts could defer India’s monetary recovery from pandemic’s aftermath
The Indian economy was already in awful shape, however, the flare-up of the pandemic has dived it further. The Reserve Bank of India’s committee report expressed that the pandemic “has impacted the best of businesses” and organizations that were generally better before the virus outbreak. Experts believe that banks might be more cautious about loan restructuring at this point, as it suffered major losses in the past.
Indian banks are now wrestling with 9.35 trillion rupees ($123 billion) of nonaccrual loans, which was equal to about 9.1% of their total asset toward the end of Sept. 2019.
About 19 sectors that were not under financial stress before the pandemic are currently facing Rs 15.5 lakh crore of debt. Agribusiness is also under Rs 9.8 lakh crore debts, The Hindustan Times reported.
The RBI committee headed by former ICICI Bank head K V Kamath has indicated sector-specific ratios on five significant variables: – the total debt to income earnings before interest, tax, depreciation, and amortization (EBITDA), total outstanding liability to adjusted net value, current ratio, debt service coverage ratio and average debt service coverage ratio to choose whether or not businesses will be qualified for loan restructuring, The Hindustan Times reported.
According to the Nomura report, the expected risk-aversion amid banks to grow despite their adverse experience in reconstructing cycles. However, the banks have become much wiser regarding the restructuring cycle after experiencing a setback last year. A fresh surge in debt could hit credit growth and delay the recovery of India’s economy from the pandemic.