Just like India, Pakistan faces major bad loans crisis; NPAs spike 23%

The issue of non-performing assets (NPAs) in the Pakistani banking sector has become the subject of much discussion and scrutiny. According to a data released by the State Bank of Pakistan (SBP), the non-performing loans (NPLs) of banking sector rose over 23 per cent during 2018-19, amid persistent slowdown in the economy, tightening of macroeconomic conditions and limited cash flow of the corporate entities.

The SBP on Monday said that the NPLs in banking increased 23.2 per cent to Rs 76,800 crore by June end this year, from Rs 62,360 crore in the last fiscal year, Pakistan leading daily DAWN reported. The rise in bad loans was attributed to energy and sugar sectors, as they together accounted for more than 50 per cent of the rise.

The data indicated that the condition of Pakistani banking sector is fragile and stress is rising in the energy and sugar sectors, especially public sector companies operating in these sectors.

The gross NPLs to total loans of the banking sector also rose to 8.8 per cent during June compared to 7.9 per cent in the corresponding period last year, SBP said in a testimonial before a parliamentary panel on Monday.

Also Read: Bad loans in banks may decline to Rs 9.1 lakh crore by March 2020, says survey

"Most of this increase was due to energy and sugar sectors, as they together accounted for more than 50 per cent of the rise," SBP team, led by Deputy Governor Jamil Ahmad, told Pakistan's Senate Standing Committee on Finance and Revenue.

"In energy, most of the rise in NPLs pertained to the public sector", SBP team reportedly said.

HOW BAD IS INDIA'S SITUATION?

Indian banking sector has faced NPA trouble for years. Indian banks have been sitting on bad loans of Rs 9.4 lakh crore (as on March 31, 2019) and the clean-up exercise has been a daunting task for the sector.

Also Read: SBI writes off bad loans worth Rs 1.63 lakh crore in 5 years; Alok Ind, Bhushan Steel top defaulters

Public sector banks (PSBs), especially State Bank of India (SBI), had been the worst-hit due to NPA crisis as they accounted for a lion's share of these loans. As per RBI data on domestic operations, the gross NPAs of PSBs stood at Rs 7.10 lakh crore as on March 31, 2019, which amounts to an increase of 10.77 per cent over the last three financial years.

In a bid to pull the banking sector out of this vicious cycle of bad loans, the Indian government has initiated 4R's strategy of recognition, resolution, recapitalisation and reforms to clean up bank balance-sheets. The process is going at a fast pace, but it may take a while before the efforts yield significant results.