03/13/2008, 00.00
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India faces a crisis of nonperforming loans

With rapid economic development, for years the banks have easily granted small loans, raking in very high rates of interest. Now many professionals, small businessmen, and farmers are no longer able to pay. Experts: the phenomenon is contained, but there is the risk that it could expand.

New Delhi (AsiaNews/Agencies) - India is facing its first crisis of widespread insolvency in its credit markets, although the "modest" dimensions of the local banks and the limited extent of loans mean the seriousness of the crisis is contained.  For years, Indian banks have lured clients and have extended financing with fewer and fewer guarantees: from home loans to auto loans to personal loans in areas like credit cards and microcredit (up to 100,000 rupees, about 1,600 euros), above all for full-time professionals and businessmen.

For years, the sector has grown: it was up 40% in 2006.  But rapid inflation has forced the central Reserve Bank of India to keep interest rates high.  These are now at about 7%, among the highest in Asia.  In order to honour their scheduled payments, many debtors have asked their banks for "small loans" in order to make overdue payments; some are indebted to three or four banks.  Now the banks are being more careful, and in 2007 growth in loans fell to 20%. The ICICI, the largest private bank in the country, now finances only those who have no other loans to repay.

In February, the government said it will cover 15 billion dollars in debts held by farmers.  Many have observed that this will not so much help the rural population - which is in any case strangled by rising costs for fertilisers and petrol, and by the pollution of irrigation water - as it will the credit institutions, which will immediately recover the entire value of loans with difficult prospects of repayment.

But the insolvency of city dwellers and small businessmen is much more serious.  These, according to Crisil (the Indian affiliate of Standard & Poor's) constitute 17% of bank loans to clients, with a rise of 6% in 2007. Crisil estimates that the sector of microcredit has already suffered losses of 5-8%.  These are expected to rise to 12-15%.

The situation has been worsened by the intimidation tactics used by credit collection agencies: repeated telephone calls and home visits, with very rude behaviour toward familes, long harangues at the office, legal action in tribunals more than a thousand kilometres away.  The banks, however, deny that they use such methods.

Analysts agree that the problem is not yet serious, since the value of these loans is not very high, amounting to about 10% of retail finance.  But the risk is that the sector could grow significantly, as hundreds of millions of people enter the consumer market. (PB)

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