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Too Early to Celebrate Success in PSB;s bad Loan Recovery

 

Finance Minister Arun Jaitley expressed satisfaction at the financial health of public sector banks (PSBs) after their annual performance review on September 25. Jaitley said PSBs’ non-performing loans (NPAs) are in a decline and they can step up lending as the economic growth picks up. Notwithstanding finance minister’s optimism, the Indian banking sector is not yet out of the woods.
 
Just when Jaitley was exuding optimism, the banking industry feared the collapse of Infrastructure Leasing and Financial Services (IL&FS), a non-banking finance company with Rs 91,000 crore of unpaid loans on its books. The fear of contagion led investors to dump shares of other NBFCs, which triggered stock market rout.
 
The market calmed only after IL&FS shareholders Life Insurance Corporation and State Bank of India promised capital infusion.
 
IL&FS is an unlisted entity and its functioning has been quite opaque. At the moment, the depth of its financial crisis can only be guessed at.
 
Jaitley said that PSBs are expected to recover as much as Rs 1.8 lakh crore of bad loans this fiscal. However, this is just a projection because bankruptcy proceedings can take much longer than expected. Moreover, the quantum of recovered bad loans may be less than projected.
 
That aside, the external front is fraught with uncertainty as US-China trade war escalates. If the two sides do end trade confrontation soon, global trade flows could get impacted. India’s exports too could be hit, hurting domestic manufacturing in turn. In that case, India’s economic growth could lose momentum and more loans could sour. That means it is too early to celebrate the banking sector’s turnaround.


Posted By :  Admin
Posted Date :  06-10-2018