Specialist in Indian Banking and Economic Research

Hemindra Hazari

The results of the State Bank of India (SBI), India’s largest and most prestigious bank, for the quarter ended June 30, 2017 (1QFY2018) highlighted some worrying issues: the inadequacy of additional equity capital in the face of mounting non-performing loans, and the surge in SBI’s non-performing retail loans (defined to include agricultural lending) at a time when most other banks are reporting robust retail asset quality. Although SBI maintains that the deterioration in asset quality is restricted to certain geographies and may be one-off, this analyst believes it is an ominous sign of things to come. Earlier, with the rapid growth of NPAs in corporate loans and industrial stagnation, corporate lending had stalled; the rise of retail loans was meant to compensate for that. Now the large spike in SBI’s retail loans is a worrying development.

The results of the State Bank of India (SBI), India’s largest and most prestigious bank, for the quarter ended June 30, 2017 (1QFY2018) highlighted some worrying issues: the inadequacy of additional equity capital in the face of mounting non-performing loans, and the surge in SBI’s non-performing retail loans (defined to include agricultural lending) at a time when most other banks are reporting robust retail asset quality. Although SBI maintains that the deterioration in asset quality is restricted to certain geographies and may be one-off, this analyst believes it is an ominous sign of things to come. Earlier, with the rapid growth of NPAs in corporate loans and industrial stagnation, corporate lending had stalled; the rise of retail loans was meant to compensate for that. Now the large spike in SBI’s retail loans is a worrying development.

SBI's Retail Slippages: Mere Blip, or Canary in the Coal Mine?

Thematic (Sector/Industry)

The surge in non-performing assets (NPAs) in the Indian banking industry disguises a lesser known issue of a larger percentage surge in bad loans from the overseas branches of banks, particularly from select new private sector banks having significant foreign ownership. While the growth in overseas NPAs is from a low base as compared with domestic NPAs, the quantum is not insignificant. Some of the banks adventurously ventured into overseas markets, but, it appears, ended up extending foreign currency loans to highly leveraged Indian companies, which may have resulted in significant contamination of their overseas portfolio and consequently a belated contraction of their overseas assets.

The surge in non-performing assets (NPAs) in the Indian banking industry disguises a lesser known issue of a larger percentage surge in bad loans from the overseas branches of banks, particularly from select new private sector banks having significant foreign ownership. While the growth in overseas NPAs is from a low base as compared with domestic NPAs, the quantum is not insignificant. Some of the banks adventurously ventured into overseas markets, but, it appears, ended up extending foreign currency loans to highly leveraged Indian companies, which may have resulted in significant contamination of their overseas portfolio and consequently a belated contraction of their overseas assets.

Post the Bharatiya Janata Party’s (BJP) decisive victory in the Uttar Pradesh (UP) state elections, alarm bells have commenced tolling in the capital market.  The cause for concern is the BJP’s promise to the UP electorate to waive off all farm loans and provide fresh loans at zero per cent interest. Media, capital market analysts and prominent bankers have jumped on the bandwagon of moral hazard, ruining the loan payment discipline amongst farmers and apprehensions that the sacrosanct fiscal deficit may be breached as a consequence of such ‘populist’ policies. The BJP electoral promise raises some issues which need to be explored further on whether the central government has the fiscal space to provide for a total farm waiver and whether the criticism of moral hazard is credible.

Post the Bharatiya Janata Party’s (BJP) decisive victory in the Uttar Pradesh (UP) state elections, alarm bells have commenced tolling in the capital market.  The cause for concern is the BJP’s promise to the UP electorate to waive off all farm loans and provide fresh loans at zero per cent interest. Media, capital market analysts and prominent bankers have jumped on the bandwagon of moral hazard, ruining the loan payment discipline amongst farmers and apprehensions that the sacrosanct fiscal deficit may be breached as a consequence of such ‘populist’ policies. The BJP electoral promise raises some issues which need to be explored further on whether the central government has the fiscal space to provide for a total farm waiver and whether the criticism of moral hazard is credible.

U.P. Loan Waiver: 'Populist' or a Necessity?

Asia focused research insights & advisory, Asia Advisors

Vinay Patel

Asia focused research insights & advisory

Asia Advisors

Asia Advisors is an independent financial advisory and research firm working closely with corporates and institutions to provide consulting solutions & research insights. We provide advisory services including capital solutions, business strategy and investment insights.
Firm is headed by Vinay Patel who has close to two decades of experience in research and business development at large, international investment banks such as HSBC and ICICI Securities. Led research efforts in areas of Macroeconomics, Asset Allocation & Investment Strategy for close to a decade in global & domestic research teams. As a business head in Singapore, advised top global investment management firms & Portfolio managers in Asia for India related investments.
Vinay was recently joined by Swapnil Manish, an investment banker and ex-ecommerce entrepreneur with more than 12 years of experience. Swapnil was the TMT banker at BNP Paribas and was part of several large M&A and ECM transactions (Bharti-Zain, Bharti Infratel IPO, Schneider-Zicom among several others). He's also had a stint as an ecommerce entrepreneur having launched & led Mumbai's first online grocery player.

Expectations on economic reforms from Modi government are running high after the big win in Uttar Pradesh. Political analysts are expecting this win to ease Modi's chances for another term at national elections in 2019 and that would give him total 7 year period to push for reforms (In his victory speech Modi himself said he is now looking for delivering by 2022 - the 75th year of Indian Independence). Amidst the euphoria of Modi's victory, we would like to highlight some of the ground realities…

Expectations on economic reforms from Modi government are running high after the big win in Uttar Pradesh. Political analysts are expecting this win to ease Modi's chances for another term at national elections in 2019 and that would give him total 7 year period to push for reforms (In his victory speech Modi himself said he is now looking for delivering by 2022 - the 75th year of Indian Independence). Amidst the euphoria of Modi's victory, we would like to highlight some of the ground realities…

Investors Need To Be Patient With Reform Momentum Even As Modi Win Ensures Policy Continuity

Ruling party BJP has won a landslide victory in the largest state of Uttar Pradesh (UP) thereby putting to rest any doubts over the adverse impact of demonetisation on the electoral prospects of the party. Performance in UP is impressive as the opposition had formed an alliance to fight Modi but still lost poorly.  Most political analysts have been caught on the wrong foot as they predicted a hung assembly while the results show that Modi wave seen during the General elections continues. We…

Ruling party BJP has won a landslide victory in the largest state of Uttar Pradesh (UP) thereby putting to rest any doubts over the adverse impact of demonetisation on the electoral prospects of the party. Performance in UP is impressive as the opposition had formed an alliance to fight Modi but still lost poorly.  Most political analysts have been caught on the wrong foot as they predicted a hung assembly while the results show that Modi wave seen during the General elections continues. We…

Landslide Win for Modi in UP Elections;Upper House No.s to Cross 100 Mark by 2018, a +ve for Reforms

India

Bank of Baroda owns and operates commercial banks in India.  The Group's banks provide the traditional forms of banking services, including CD's, Credit Card services and a variety of car loans, in addition to gold banking and a range of insurance services.  The Group also owns IBU International Finance Limited, an international banking company in Hong Kong.

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SBI's Retail Slippages: Mere Blip, or Canary in the Coal Mine?

The results of the State Bank of India (SBI), India’s largest and most prestigious bank, for the quarter ended June 30, 2017 (1QFY2018) highlighted...

Hemindra Hazari

Chickens Abroad Come Home to Roost

The surge in non-performing assets (NPAs) in the Indian banking industry disguises a lesser known issue of a larger percentage surge in bad loans...

Hemindra Hazari

U.P. Loan Waiver: 'Populist' or a Necessity?

Post the Bharatiya Janata Party’s (BJP) decisive victory in the Uttar Pradesh (UP) state elections, alarm bells have commenced tolling in the...

Hemindra Hazari

Investors Need To Be Patient With Reform Momentum Even As Modi Win Ensures Policy Continuity

Expectations on economic reforms from Modi government are running high after the big win in Uttar Pradesh. Political analysts are expecting this...

Asia Advisors

Landslide Win for Modi in UP Elections;Upper House No.s to Cross 100 Mark by 2018, a +ve for Reforms

Ruling party BJP has won a landslide victory in the largest state of Uttar Pradesh (UP) thereby putting to rest any doubts over the adverse impact...

Asia Advisors

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