BSE Sensex falls; RBI stress test shows likely jump in bad loans for private banks

MUMBAI (Reuters) - The BSE Sensex fell on Friday, led by declines in lenders such as ICICI Bank Ltd after the Reserve Bank of India's stress tests surprisingly showed private banks are likely to see a significant jump in bad loans.

The RBI also said the probability of slippage of state electricity boards' exposure to bad loans is very high considering the implementation of new regulatory norms effective April 1, 2015.

The ability of India's debt-burdened firms to repay has worsened as leverage has increased, straining a banking sector burdened by bad loans, according to a report released by the RBI on Thursday.

Domestic shares also tracked lower Asian equities after Greece failed again to reach an agreement with its creditors and stumbled towards a default.

"The situation on bad loans and state electricity board is bad but not alarming. My best is that industrial economy would turn around and avert this crisis," said G. Chokkalingam, founder of Equinomics, a Mumbai-based research and fund advisory firm.

The 30-share BSE Sensex fell 0.33 percent, while the 50-share Nifty lost 0.27 percent.

However, shares were headed for their second consecutive weekly gain amid a rally underscored by rate cut hopes on improvement in monsoon and value-buying after hitting nearly eight-month lows earlier in the month.

Both the indexes were headed for a weekly gain of 1.8 percent each.

The Bank Nifty fell 1 percent on RBI's concerns.

ICICI Bank fell 1.2 percent, while HDFC Bank Ltd lost 0.8 percent.

Kotak Mahindra Bank was down 1.8 percent and State Bank of India lost 0.8 percent.

(Reporting by Abhishek Vishnoi; Editing by Prateek Chatterjee)