11:30 AM
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It isn’t often you hear analysts express optimism about Indian banks’ bad loans problem.
To recap, after years of extending credit to companies that were more well-connected than well run, India’s banks are recording high bad debts. Public sector banks have the biggest problem, with bad loans at 11.2 per cent of assets, according to Moody’s.
But a new framework for dealing with soured loans imposed on banks by the Reserve Bank of India should go some way to soothe the nerves of the Indian banks’ bondholders, the credit ratings agency says.
In short, the RBI now requires Indian banks to take immediate action on bad loans and to make the extent of soured debts in the system much more transparent. If a loan becomes overdue for 61-90 days, and the aggregate exposure of banks to the borrower exceeds INR1 billion, affected banks now must form a joint lenders forum and draw up an action plan to resolve the borrower’s distressed assets.
The RBI will also establish a centralized database to collect, store and disseminate data on large borrowers to all lenders in the banking system, which will lead to a more transparent recognition of the extent of distressed assets.
Moody’s says