The Reserve Bank of India seal appears on a gate outside the RBI headquarters in Mumbai. Photo: Reuters

Bad loans in Indian banks have reached alarming levels and the country has joined the dubious league of nations with a high proportion of stressed assets.

A study by ratings agency CARE showed that India’s ratio of non-performing assets (NPAs) is 9.85%. Countries with similar ratios are eurozone members: Portugal, Italy, Ireland, Greece and Spain — sometimes disparagingly known as the PIIGS.

During the height of the financial crisis that swept the globe in 2008, many of these states had to be bailed out by the European Union and the International Monetary Fund. The only countries with a higher NPA ratio than India are Portugal, Italy, Ireland and Greece. Spain has a smaller ratio of bad loans compared to India, the Times of India has said.

These bad loans have created two problems. They have rendered banks short of capital and reduced banks’ capacity to lend for large long-term projects.

The report classifies major economies into four blocks — very low NPAs, low NPAs, medium level NPAs and high NPAs. Countries with a very low level of bad loans are Australia, the UK, Hong Kong, Canada and South Korea. Within the emerging market economies, China, Argentina and Chile have low ratios of 1-2%.

In late October the Indian Government announced a Rs 2.11 trillion (US$32.85 billion) recapitalization package to revitalize state-owned public sector banks grappling with NPAs. This was to help these banks resolve bad loans, clean up their balance sheets and to comply with Basel III capital adequacy standards, which kick in from March 2019.