Banking's big problem: NPAs and bad loans have returned to haunt banks

India's biggest bank, SBI, announced quarterly results earlier this week and the share price tanked. 

While the bank announced a big jump in net profit, its non-performing assets also rose sharply, confirming that weak growth and slowdown in key sectors such as power and steel were continuing to hit banks. 

The fortunes of banks are now more closely entwined with that of big business than before. Loans to top corporate groups account for a significant chunk of all debt. 

Weak growth, both in India and globally, means the bad loan problem, never far from the agenda, has returned to haunt India's banks. And predictably once again, the brunt will be borne by the public sector banks. 

SBI's non-performing loans, which are a bellwether for the entire sector, were Rs 20,324 crore or 2.22% of total loans (after provisions) for the latest quarter. That might not seem much, but that number was 1.6% a year ago. 

Many analysts expect worse to come over the next few quarters as corporate India, hit hard by slowing domestic and global growth, feels the pinch. 

Sector-specific problems such as the difficulties faced by power plants in gaining access to fuel will also play a significant role since a big chunk of non-performing assets are expected to come from infrastructure. 

The fortunes of India's banks are now more tightly entwined with that of a few big corporate groups which now make up a significant chunk of total loans. 

Not all these loans have turned bad, but if slow growth and infrastructure problems remain, then expect a large chunk of these loans to weigh significantly on banks' books. (Economic Times)