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Looking at the canary: Do SBI Cards' bad loans have a deeper meaning?

If Covid-19 causes a fresh havoc to government-bank finances, it could be back to the old story of large-scale losses prompting further capital infusion by the government, writes T N Ninan

Indian Economy | Weekend Ruminations | Banking sector

T N Ninan 

T N Ninan

It could be the canary in the coalmine: and Payments has reported a trebling of its bad loan percentage in just one quarter. If it had not been for the moratorium order preventing the full recognition of delinquency, the bad loan ratio would have jumped more than five-fold, from 1.4 per cent to 7.5 per cent. Credit card debt as a percentage of the total is tiny, but it is expensive credit and default is usually a sign that personal finances are in trouble. So does this development have a larger significance?

In the last couple of years, the government-owned banks had mimicked some private banks and switched their focus from industrial credit to retail and service sector loans, which now account for over half the total loan book. This had followed the realisation that industrial loans (especially to large companies) often ran into trouble. Bad debts were as high as 17.6 per cent, most of it involving large borrowers, even as bank scams continued to flourish — 90 per cent of it in the government’s banks, which clearly face continuing problems in assessing risk and spotting scamsters. And so, retail and service sector loans have grown rapidly, some sub-sectors at 20 per cent and 30 per cent, year on year, even as industrial loans have stagnated.



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First Published: Fri, October 23 2020. 19:30 IST