India’s Bad Loan Problem Is Worse Than Official Numbers Show

Rahul Satija and Suvashree Ghosh

(Bloomberg) -- On the face of it, India’s bad debt problem is improving.

Most banks have reported a smaller percentage of bad loans on their books in the last quarter, but that’s only possible because India’s Supreme Court barred banks from classifying any loans as non-performing assets from the start of September.

As well as reporting official gross bad loan ratios in their earning statements, banks are outlining how much the ratio would be if they’d mark the borrowing as bad. In almost every case, the ratio is much higher.

The Reserve Bank of India and lenders have opposed the order as they still need to provision for the soured loans, even though the ruling makes it harder for them to collect on the money they’re owed. The order is valid until the court announces it verdict on the issue, though a date hasn’t been set for the next hearing.

The government’s chief economic adviser has called for a review of asset quality of banks once the forbearances end. A similar review in 2015/16 pushed India’s bad loan ratio to an 18-year high of 11.6%. The RBI predicts this could rise to 13.5% by September.

Here’s a look at the full extent of India’s bad loan problem in selected financiers:

(Adds fifth paragraph, IndusInd Bank numbers)

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