By Sriram Lyer and cross-posted from Quartz
Is India’s banking sector imploding?
In the last 24 hours alone, the country learnt that the industry has written off bad loans worth nearly four times the latest annual budget of the Nepal government. What’s worse, the number may as much as double if a forecast from a global investment bank comes true. Adding to the gravity of the situation, India’s second-largest private lender, ICICI Bank, and its CEO Chanda Kochhar, face a potential class action lawsuit in the US over the recent allegations of corruption and nepotism.
The Narendra Modi government revealed in parliament that Rs2.41 lakh crore ($37 billion) were written off by India’s public sector banks (PSBs) in the last four financial years. “Banks write off bad loans or non-performing assets (NPAs) at regular intervals as it helps them clear their balance sheets and achieve tax-efficiency,” minister of state for finance Shiv Pratap Shukla said in a written reply to the Rajya Sabha. Shukla, however, did not reveal the names of the defaulters, citing confidentiality.
While the government has insisted that write-offs do not mean the banks will give up on the recovery of loans, an analysis has revealed that the total recoveries by banks in the last four years has been less than 10% of the write-offs.
Most write-offs come from the corporate sector which accounts for over 80% of the total PSB loans, according to the Reserve Bank of India (RBI). On the other hand, many government banks have stayed afloat only because of the government’s financial support, including the most recent $32 billion recapitalisation plan…