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Indian Banks may face rise in bad loans from small businesses

February 24, 2023

Indian Banks may face rise in bad loans from small businesses
Indian banks could see an increase in bad loans in the retail and small business segments from its recent low levels, an official with the country’s largest lender said on Thursday.

While loans to this segment have been growing fast, defaults have thus far been few.

“We cannot have a system where we have a 20% growth year-on-year on MSME and retail and then an NPA (ratio) which will remain below 1% for retail,” Ashwini Kumar Tiwari, managing director at State Bank of India said at an industry event in Mumbai. “This is not sustainable, it has to align with the system.”

Gross non-performing loans for Indian banks fell to a seven-year low of 5% as of September 2022, according to the Reserve Bank of India’s financial stability report. For the small businesses, the bad loans were higher at 7.7%.

The gross NPA ratio for the small and medium enterprises may rise to 10-11% by March 2024, the Associated Chambers of Commerce and Industry of India and CRISIL Ratings said in a report released today.

These businesses often have weaker cash flows or little equity, which erode quickly in times of stress and eventually leads to defaults, SBI’s Tiwari said. “But clearly, MSME (Micro, Small and Medium Enterprises) stress is something which might be coming.”

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