Indian banks are short on capital, non-performing loans: report

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Mumbai: The Indian banking system is sound in terms of RBI’s regulatory policies. However, a comparison with the major economies shows that Indian banks are in the bottom half in terms of capital adequacy and non-performing assets (NPAs).
Last week, RBI Governor Shakkanta Das urged banks to raise capital to meet growth demands. With this in mind, the Bank of Baroda’s (BoB) research department has compared the health of Indian banks to those in major economies.
In terms of capital adequacy, India’s average of 15.3% for the banking system is below that of 22 of the 26 countries in the study, with only Greece, China and Russia having lower capital adequacy. Most emerging markets – including Argentina, Indonesia, Thailand, Malaysia, Korea, Spain, Brazil, South Africa and the Philippines – have higher capital to risk-weighted asset ratios.
In terms of the ratio of NPAs to total wealth, India is close to the bottom, with only Russia and Greece having higher NPAs at 7% and 9.2% respectively. According to BoB economist Sonal Badhan’s report, 22 of the 26 countries have NPAs below 4% versus 5.8% for India.
In terms of the ratio of provisions to NPA, India performs better than most other countries. With 74% coverage, India is better than 19 others. In terms of return on assets and return on equity, India is in the middle.
The BoB report is based on IMF data, which may differ from Indian bank data as definitions have been homogenized across countries. Analysts say higher levels of non-performing loans increase funding costs for other borrowers as banks have to price borrowing costs into their loans. A lower capital base reduces their ability to raise funds cheaply as it would lower their creditworthiness.
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