India's bad loans may not have peaked yet: Rajan

[BENAULIM, India] The Indian banking system may not yet have seen the peak in bad loans, the Reserve Bank of India Governor Raghuram Rajan said on Thursday, adding the central bank was working with lenders to recognise and resolve these non-performing assets.

The ratio of bad loans at Indian banks has doubled over the past three years on the back of an economic slowdown - a worry for a country that is hoping to spur a revival in credit to key sectors such as infrastructure.

That has prevented banks from lending more, despite two interest rate cuts by the RBI this year totalling half a percentage point.

Banks that have so far released quarterly results for the January-March quarter have reported a mixed trend in bad loans. "Some banks have managed to start bringing down their bad loan positions, others they are still increasing," Mr Rajan said, when asked at a news conference whether the banking system had seen the worst in terms of non-performing assets. "I think I would feel more confident when there is a more uniform series of results across the banks. That is not to say we haven't crossed that point. It is just that I don't think we can be certain," he added.

State Bank of India, the country's largest lender is due to report earnings next week.

Mr Rajan was addressing reporters after the central bank's board meeting in the western state of Goa.

The governor has publicly expressed frustration at how slowly banks are passing on rate cuts to benefit the broader economy.

Mr Rajan also said that the RBI was not against the idea of an independent public debt management agency (PDMA) and that there was no difference of opinion between the central bank and the government on the issue.

The comments come after the finance ministry this month dropped plans to set up an independent PDMA for now, saying it would conduct more consultations on the subject with the RBI.

The RBI currently manages the government's debt. "I think we have said repeatedly we are not against idea of PDMA, which is suitably independent of all influences," Mr Rajan said. "We will be in constant dialogue to see how we can make it function effectively."

REUTERS