New Fault Lines in Banking
• Punjab National Bank, India’s second-largest public sector bank, has gross NPAs of 22.71 per cent in small Mudra loans in September-end 2019
• State Bank of India’s agriculture NPAs have risen from 5 per cent three years ago to 14 per cent in the first half of 2019/20
• The telecom sector, which has seen two bankruptcies in as many years, is staring at another big liquidation after the Supreme Court ruling on payment of ₹92,641 crore AGR dues in January
• The RBI has warned about the possibility of rising defaults in unsecured retail loans as growth slows
For the banking sector, just looking to come out of the NPA crisis – gross NPAs fell after seven years, from 11.2 per cent in 2017/18 to 9.1 per cent in 2018/19 – the good news may be short-lived. More stress is emerging in agriculture, Mudra small loans, unsecured retail loans and telecom where banks and non-banks have as much as ₹27-31 lakh crore locked up (See New Stress Points). The total balance sheet of banks and non-banks is ₹190 lakh crore, equal to India’s GDP, and any blow-up in these segments could threaten the stability of the financial system as well as the already vulnerable economy.
₹190 LAKH CRORE The total balance sheet of banks and NBFCs, which is equal to the GDP of India
“TBS-II (the second wave of the twin balance sheet) crisis is the reason for the current economic troubles,” Arvind Subramanian, former chief economic advisor, has argued in a 38-page paper titled “India’s Great Slowdown: What happened? What’s the way out?” India, according to Subramanian, is facing a four balance sheet challenge. Non-banks and real estate firms have joined the earlier two villains, banks and infrastructure companies, under TBS-I. “TBS-II will lead to an even bigger damage to the economy,” warned Subramanian, who has co-authored this paper with Josh Felman,
