• 9 hours Fighting For Survival In The Streaming War
  • 1 day Want A Job? Forget About A Bachelor’s Degree
  • 2 days Another Major Car Maker Is Backing Hydrogen
  • 2 days Are Americans Finally Sold On Soccer?
  • 3 days Is The Tech Bubble About To Burst?
  • 3 days Coronavirus Could Cost Tourism Industry $80 Billion
  • 3 days What Web Traffic Trends Can Tell Us About The World
  • 4 days Miners Face Greater Headwinds
  • 4 days Boris Johnson Proposes Billion Dollar Bridge To Northern Ireland
  • 6 days Goldman Slashes Oil Price Forecast By $10
  • 7 days Tesla Raises $2 Billion In Share Selloff
  • 7 days What The T-Mobile Takeover Of Sprint Really Means For Markets
  • 7 days The U.S. Has Charged Huawei With Racketeering And Conspiracy
  • 8 days How Hydrogen Could Become The Fuel Of The Future
  • 8 days Millennials Can’t Retire, But They’ll Still Have To Help Their Parents
  • 9 days This Gold Miner Just Increased Its Dividends By 40%
  • 9 days Airbnb IPO Under Threat As China's Economy Drags
  • 9 days The Infamous Equifax Hack Just Became A National Security Issue
  • 10 days BHP Takes The Crown As World’s Top Copper Miner
  • 10 days Tesla Reopens Chinese Factory After Coronavirus Scare
Are Americans Finally Sold On Soccer?

Are Americans Finally Sold On Soccer?

Even though played in the…

Is The Tech Bubble About To Burst?

Is The Tech Bubble About To Burst?

The technology sector may come…

Charles Benavidez

Charles Benavidez

Staff Writer, Safehaven.com

Charles Benavidez is a writer and editor for Safehaven.com. Charles is located in New York City and has over 5 years of experiencing covering financial…

Contact Author

  1. Home
  2. News
  3. Breaking News

India’s Banking Disaster Could Impact The Entire Region

India

The Indian banking sector is a ticking time bomb that no one can defuse at this point. Weighed down by a massive pile-up of bad debt and expanding losses for years, the country now has to deal with the reality of a government that is either unwilling or unable to fix things.

Non-performing assets (NPAs) by both private and state-owned banks in the world's seventh-largest economy have now ballooned to more than Rs 8 lakh crore (about $123 billion), equal to about 5 percent of the country's gross domestic product (GDP).

Total stressed assets including NPAs, written off loans, restructured loans have passed Rs 10 lakh crore (about $154 billion), or 12 percent of total loans by the country's banking system.

Looked at in another way, Indian banks are likely to recover only Rs 88 out of every Rs 100 loaned out.

That's a recipe for disaster, but sadly nothing much is likely to change in a hurry.

(Click to enlarge)

Source: FirstPost

A Lame Duck Banking Management

Reserve Bank of India's (RBI) governor Urjit Patel's  May 14 speech is symptomatic of what ails India's banking industry in general.

Speaking a month after the country's biggest banking fraud was unearthed, the governor highlighted more than a dozen things that are wrong with the banking system. But his speech quickly turned into a game of passing the buck after refusing to admit culpability for the scandal and instead shifting the blame to the government.

It defies logic how the Punjab National Bank's management could continue doling out fresh loans like confetti for years to a company that had defaulted on its first loan--a modest one at that. Related: The Most Traded ETF In U.S. Stock Markets

It turns out that the country's third-largest bank does not have a fully-integrated CBS system that could have detected the fraud before it escalated into a jaw-dropping $2 billion. A CBS is a back-end centralized software system that posts daily updates of a bank's transactions across all its branches and generates alerts if any activities raise a red flag.

House of Cards Could Come Tumbling Down

The PNB ruckus is by no way an isolated incident: India’s banking systems are generally weak. India is no doubt faced with a daunting task trying to clean up this mess because the country just doesn't have many options at all.

Recovering all the money owed is out of the question. In fact, it's estimated that banks will have to absorb at least 60 percent of those debts in the form of write-offs, which could throw them in a deep profit hole for several quarters, if not years.

In late 2017, the government announced a recapitalization plan that will see it inject Rs 2,11,000 crore into the system. But that amount will merely serve as a temporary antidote and a major surgical operation will still be needed.

Ultimately, the greatest danger will be if the mess in India's banks spills over to the general economy (as it did during the Japanese banking crisis of the late 90s) and its neighbors.

The South Asian country had been slated to become the third-biggest contributor to world economic growth from 2017-2019. But the entire house of cards could come tumbling down unless the country's banks quickly change tack.

By Charles Benavidez for Safehaven.com

More Top Reads From Safehaven.com:

Back to homepage

Leave a comment

Leave a comment