Warning of increase in bad loans of retail and small business houses

Mumbai: Bad loans of Indian banks are likely to increase from recent lows. Loans to retail and small business houses are set to weaken, said a State Bank of India (SBI) official.

Loans to retail and small business houses are growing rapidly but defaults in this segment have been very low so far.

We don't have any system where retail and small business loans increase by 20 percent annually, but the amount of NPA of retail loans can remain below 1 percent, said this official while addressing a program.

This ratio is not sustainable and the system must adapt. A Reserve Bank report earlier said that the gross non-performing loans of Indian banks fell to a seven-year low of five per cent as on September, 2022.

The NPA figure in small business houses was 7.70 percent.

Associated Chambers of Commerce and Industry of India and CRISIL said in a report that the gross NPA ratio of small and medium businesses is expected to increase to 10 to 11 percent by March, 2024.

Smaller business houses have poor cash flow or have low equity which depreciates rapidly in times of stress and results in defaults. 19 trillion or more than 14 percent of the total loans of Indian banks were outstanding in the MSME sector by the end of December 31.

The gross NPA ratio for MSMEs is less than 10 per cent, due to delays and one-time resolution schemes, although the figure is still high, an SBI official said.