By: Nandika Chand |Srinagar, Kashmir | Last Update May 28, 2020
To help state banks struck hard by the coronavirus pandemic, the government needs to pump the lenders up with $20 billion (about 1.5 trillion rupees). According to sources, the government was looking to recapitalise the state banks with 250 billion rupees but revised its plan as loan defaults are expected to rise swiftly.
Industry experts said the banks are grappling with a number of issues, in particular the noted bad loans that it has accumulated over the years. Major corporations, individual clients and other relatively smaller businesses have defaulted on loans. This in turn has forced lenders to write off $30 billion of bad debt in 12 months to the end of June. And due to the extensive COVID-19 nationwide lockdown, businesses and corporate houses face huge losses.
Reports state that Indian banks were already saddled with 9.35 trillion rupees of non-performing assets (NPAs) at the end of September, 2019. Standard and Poor’s (S&P), global rating agency, had earlied said the credit cost for the Indian banking system will rise to 2.8 per system in 2020-21. It said the pandemic will hit the demand and supply sides of the economy through domestic and external channels. The government is still discussing capital plans, with the final decision to be taken in the second half of the fiscal year.
In March, Ajit Mishra, the vice president of research at Religare Broking, had said the banking sector was showing signs of recovering but COVID-19 had put it on a back foot again. Analysts say the extended lockdown will lead to further contraction in economic growth. And this has led several global rating agencies to change their outlook on India’s banking sector to negative.
Sources said the center would not be able to fund the entire lump sum of $20 billion itself. They said it would take up indirect measures such as issuing bonds as a means of recapitalisation. Moreover, the government has already pumped 3.5 trillion rupees into state-owned banks in the last five years.