DBS Bank Ltd, Singapore’s largest lender, witnessed a sharp rise in bad loans in India in year ended March. Its net non-performing assets (NPAs) rose to 10.21%, up from 2.
Banks in India are now allowed to structure infrastructure loans for up to 25 years by refinancing every five years on fresh terms. This can be done by the existing banks or even by a new set of banks. Since such restructuring will not be treated as traditional loan recast, the banks will not have to set aside money when they refinance infrastructure loans under the so-called 5:25 model.
Reserve Bank of India (RBI) governor Raghuram Rajan has kept his promise. Less than four months after giving in-principle licence to two entitles for setting up commercial banks, RBI has drafted guidelines for so-called payments banks and small banks to open up the sector. A third category, wholesale banks, will probably be looked into later.
The Bharatiya Janata Party-led National Democratic Alliance government’s financial inclusion mission, the most ambitious plan for expanding banking services in independent India, will be launched on 15 August. The government wants two bank accounts (husband and wife) opened by every family in the economically weaker segment of the society—the small and marginal farmers and labourers. Through these accounts, people will be able to save money (by keeping deposits) as well as borrow (through loan accounts).
Infrastructure is set to be one of the main focus areas of the Narendra Modi-led National Democratic Alliance (NDA) government. Finance minister Arun Jaitley’s maiden budget on 10 July may set the set the ball rolling. Meanwhile, the Reserve Bank of India (RBI), I am told, is giving final touches to a set of new norms that will enable commercial banks to generate long-term resources to support infrastructure projects.
India’s state-run banks are grappling with the twin challenges of bad loans and the requirement of massive capital. The combination of bad and restructured loans is around 12% of the assets of public sector banks. The Reserve Bank of India (RBI) is well aware of the problems that have been plaguing these banks, accounting for roughly 70% of the industry.