Corporate debt worth $178 billion at default risk: BNP Paribas

MUMBAI: A whopping 16.1 per cent or $178 billion worth of corporate credit in India is at risk of default, making the domestic banking system the worst in Asia in terms of bad loans, says a report.

According to the report by French financial services major BNP Paribas, of the total bank credit of $1,109 billion in the country, corporate debt worth $178 billion, 16.1 per cent of the total bank credit, stands the risk of default.

India is followed by Indonesia and China with 7.2 per cent and 6.6 per cent of respective total bank credit at the risk of default.

While in Indonesia, $22 billion of its total bank credit of $305 billion is at potential risk of default, China stares at $1,050 billion of potential bad loans. The Chinese banking system is worth $15,884 billion.

The brokerage did not specify the time-frame of the report which is based on an analysis of 738 listed companies in Asia which have a combined gross debt of $1.7 trillion.

"Mounting corporate debt is one of the biggest problems for Asian economies," the report said.

"Our country-wise analysis highlights the following percentages of bank loans at risk: 6.6 per cent in China, 16.1 per cent in India, 5.8 per cent in Korea, 2.4 per cent in Thailand and 7.2 per cent in Indonesia," it said.

As per BNP Paribas, policymakers in every country are trying to tackle the debt problem in different ways. "China's solution seems to be a debt-to-equity swap. This was tried in China in the late 1990s," the report said.

"The present instance, however, could be different...the government may not assume a significant part of the debt, as it did in the last instance," it added.

India's approach is more direct as the "Reserve Bank's asset quality review is forcing banks to acknowledge and write off stressed assets leading to severe short-term pain, particularly for PSU banks, but also potential long-term gain once bad loans are fully recognised," the report noted.

Last December, RBI conducted an asset quality review under which it identified 150 top corporate accounts which are stressed.

Following this, the regulator asked banks to make provisions for all these 150 accounts by December and March quarters and get the entire books cleaned up by March next.

This had all the banks, including the private sector ones, reporting massive spikes in bad loans and adding a whopping Rs 1 trillion in fresh slippages between the September and December quarters.

Already, total NPAs and stressed assets have touched 13 per cent of the system and are set to rise again in the March quarter.