Stressed balance sheets case cloud over India rebound – 9 Jun 2017

  • Bureaucracy is only one of the more visible parts of a problem that is vastly more systemic since Asia’s third-largest economy started to falter, burdened by USD150bn in bad loans, excess and idle capacity and stalled private investment.
  • Private capital investments contracted 2.1% in 1Q17 despite a surge in government spending, dragging economic growth to 6.1%, its lowest in more than two years.
  • According to CMIE, a think tank, new investment proposals in Apr 17 and May 17 were down by more than half from the same period in 2016 and 2017. The culprit is a so-called twin balance-sheet phenomenon: reduced new investment by stressed private companies, which account for three-quarters of India’s total capital spending, and one of the highest bad-loan ratios among emerging economies.
  • The bad loans have forced banks to curb overall lending growth and cut their credit exposure to industry, while the share of capital investments in India’s GDP has dropped to below 30% from more than 38% a decade ago. Modi’s administration has been slower to act on calls to write off loans and privatise state-run banks, which experts say are needed to revive corporate and bank balance sheets.
  • At least 13 of banks accounting for approximately 40% of total loans are severely stressed, with over 20% of their outstanding loans classified as restructured or bad loans.

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