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Monday, April 28, 2014
Bad Loans Will Rise
Recent RBI norms could result in a spurt in bad loans: Moody’s-By Sri Dinesh Unnikrishnan-LiveMint
Moody’s says recent RBI norms that restrict lending to overseas units of Indian firms can lead to further bad loans
Mumbai: The recent Reserve Bank of India (RBI) guidelines that restrict lending by banks to overseas units of Indian firms can lead to further bad loans, Moody’s Investors Services said on Monday.
RBI on 22 April barred banks from giving loans or issuing guarantees to overseas units of Indian companies for purposes not connected with their business. The move was aimed at preventing the so-called evergreening of loans by companies.
The global rating agency said the increase in bad loans would reflect a truer picture of asset quality of banks, Bloomberg reported quoting the report.
Indian banks are under stress due to a huge pile of bad loans and restructured advances. Gross bad loans of 40-listed Indian banks rose toRs.2.43 trillion as of December 2013, a rise of almost 37% from last year.
Almost Rs.5-6 trillion worth of loans are being restructured, according to industry eatimates. Bad and restructured loans impact the profitability of banks.
Bank need to set aside 5% of the loan value when they restructure a loan and up to 100% for a loan for which there’s no change of repayment.
Besides a prolonged economic slowdown, careless lending by banks for many years to grow their loan book is attributed to large slippages in recent years.