Higher growth essential for lowering threat from bad loans

A Goldman Sachs Group Inc. report says that while the banking system is largely healthy, the key concern is asset quality. The chart shows that net non-performing assets (NPAs), together with restructured loans, add up to half of banks’ net worth. Note the sharp rise in restructured assets as a percentage of bank net worth.

Goldman Sachs says that asset quality would be hurt badly if growth doesn’t pick up in FY14. The report says, “Using the Reserve Bank of India’s assessment of increase in NPLs (non-performing loans) in this scenario, we estimate that NPLs + restructured loans could rise to above 8% of system credit, which would hurt the banking system’s ability to offer fresh credit, even lower than the 14.5% credit growth we envisage in FY14.”