Indian banks under risk as debtors are constrained: IMF

NEW DELHI: A significant share of debt in India is with firms that have relatively constrained repayment capacity, creating risk for the country’s banks that already have low loss absorbing capacity, the International Monetary Fund ( IMF) has said.

The fund’s Global Financial Stability Report released on Wednesday shows that 36.9 per cent of India’s total debt is at risk, among the highest in the emerging economies. The country’s banks have only 7.9 per cent loss absorbing buffer, among the lowest. “A significant share of debt in Argentina, Brazil, China, India, Nigeria and Turkey is owed by firms with relatively constrained repayment capacity in terms of interestcoverage ratios,” the report notes. “Nigeria, India, Turkey and Brazil among others have a large share of corporate debtat-risk.” India’s banks may not be in position to absorb losses, the report has warned.

“Loss-absorbing buffers appear particularly low in Chile, Hungary, India and Russia (between 5 per cent and 10 per cent of riskweighted assets) and deterioration in loan quality could threaten capital levels,” it said. “Furthermore, in India, Russia, and Turkey loss-absorbing buffers have deteriorated quite substantially in recent years.” Non-performing loans in the country are at 4 per cent of advances compared with 1.1 per cent in China. Private non-financial corporate foreign debt is at 13.6 per cent of GDP while the total debt is 47.5 per cent of GDP, on the lower side compared with peers.

The IMF report said the falling crude prices have created room for further monetary easing and India is also in position to reduce its external imbalances.

“A s net commodity-importing economies, India, and to a lesser extent Turkey, are expected to reduce their external imbalances and have a chance to improve their resilience by enabling necessary reforms,” said the report released on the eve of the fund’s annual spring meeting. In its World Economic Outlook released on Tuesday, the IMF forecast India will become the fastest growing major economy in the world with growth rising to 7.5 per cent in FY15.