The Agony Continues

The domestic banking sector’s bad loan kitty continues to swell and now stands at Rs.7.7 trillion, which is 9.6% of total outstanding loans of the banking sector. According to a report by Credit Suisse, the share of power debt with interest coverage of less than 1x has now risen to 70%. Following the entry of Jio, the stress in telecom, too, has increased, with aggregate interest cover falling to 0.3x against 1.5x a year ago. The share of telecom debt with interest coverage less than 1x has increased to 57% or $23 billion. Even though steel prices surged 80% in the just previous fiscal, 55% of debt in the sector continues to have an interest coverage ratio of less than 1x, highlighting the over-leverage. In the power segment, 35,900 MW of thermal and hydropower projects have been declared as stressed assets, with the share utilities in the NPA kitty increasing by 17%. Over the past two years, there has been a decline of bank lending to the infrastructure sector, yet it occupies a chunk of the bad loans at 21% owing to land acquisition problems and cost overruns impacting projects. In other words, Credit Suisse believes that in order to resolve the stress, banks will need to take significant haircuts in the coming days.