If the financial performance of India’s largest lender (an organization or person that lends (contribute)money)  is anything to go by, an end to the severe bad loans crisis (a time when a difficult or important decision must be made) may be much farther beyond the horizon than previously anticipated (regard as probable; expect or predict). For the first time in almost 19 years, the State Bank of India reported a quarterly loss of ₹2,416 crore for the three months ended December, compared with a net profit of ₹2,610 crore in the year-earlier period. While the figures are not strictly comparable after SBI completed merger with its associates, the loss was the result of both a massive increase in provisions (the action of providing or supplying something for use) to account for bad loans and a substantial amount of mark-to-market losses on its holding of government bonds.

Provisions for non-performing assets (NPAs) more than doubled to about ₹17,760 crore, from about ₹7,200 crore in the third quarter of 2016-17. On treasury operations, SBI recorded a loss of about ₹3,255 crore, versus a profit of about ₹4,776 crore in the comparable period. The bank revealed that an audit by the Reserve Bank of India showed a divergence (a difference in opinions, interests, etc) of ₹23,239 crore in the way it classified assets (a useful or valuable thing or person) at the end of the last financial year, which led to increase in provisions in the last quarter. Most of these reclassified assets are linked to troubled projects in sectors including power and telecom. SBI, of course, is not the only lender to have had its assets forcibly reclassified by the RBI. Private sector lenders have also been found guilty of pushing troubled assets under the carpet until the RBI called their bluff (pretend ; fake).

It may be tempting to believe that last year’s bankruptcy (the state of being completely lacking in a particular good quality) law reforms will soon begin to ease the pain at banks by encouraging the quick sale of assets of troubled borrowers. The proceeds from such sales, however, would likely amount to very little in comparison with the mammoth (huge ; giant) scale of troubled assets. According to a joint study by Assocham and Crisil, gross NPAs in the banking system are estimated to increase to ₹9.5 lakh crore by March 2018, from ₹8 lakh crore a year earlier. In that case, write-offs recognising losses may be the most honest and practical way to deal with the bad loans problem.

So the RBI in the coming months should continue to push banks, both public and private, to promptly recognise the stressed loans on their portfolios (a range of investments held by a person or organization). Incidentally, Prime Minister Narendra Modi last week laid the blame for bad loans on the previous government. While it is quite true that the present bad loans crisis has been a long time in the making, the problem of lax corporate governance, which has plagued (cause continual trouble or distress to) public sector banks and contributed in no small measure to the present crisis, still remains largely unaddressed by the government. Even the latest plan to recapitalise public sector banks may achieve little more than giving some temporary relief to lenders for the sake of reviving credit growth. The bad loans problem is likely to remain a festering (cause continual trouble or distress to) sore (extremely; severely) and risks undermining the health of the economy until meaningful structural reforms to the banking system are undertaken.