DNA Money Edit: Unrecognised stressed debt another time bomb

Investors are worried about the hidden stress on banks’ books. When the Reserve Bank of India conducted an asset quality review last financial year, skeletons started stumbling out with many banks reporting sharp increases in their non-performing assets (NPAs) that drove the banks to heavy losses.

Banks, it was apparent, were greening books to show their accounts as standard and performing assets despite inherent vulnerabilities.

This year, when RBI made it mandatory for banks to report the divergence in their NPA categorisations again, the unreported  NPAs ran into thousands of crores, with YES Bank under-reported NPAs to the tune of Rs 4,177 crore while declaring only Rs 749 crore as NPAs. Axis Bank under-reported NPAs by Rs 9,478 crore and ICICI Bank by Rs 5,105 crore.

Rating firm India Ratings estimates that Rs 2.6 lakh crore of corporate and small and medium enterprises loans, which is 3.2% of the total bank credit, is expected to be recognised as stressed loans by FY19. The firm says that Indian banks are sitting on unrecognised stressed loans worth Rs 7.7 lakh crore. While some of this debt has some parental support, a majority could slip into the default category, the agency said.

The unrecognised stressed debt which banks have not acknowledged is another time bomb ticking which would pose threats if necessary safeguards are not taken. But if the economic environment in the country does not improve, it will be difficult for the companies and smaller SMEs to revive and repay their debt to the banks.