Moody’s Analytics on Tuesday said that deterioration in credit conditions was already being felt in India, where slower economic growth and rising interest rates had made it tougher for borrowers to repay debt.

India’s non-performing loan ratio increased from a low of 2.3 per cent in 2011 to around 4 per cent in 2013. Central bank data show publicly-owned Indian banks, which account for about 75 per cent of total lending, are behind the increase in non-performing loans. The government has encouraged lending to support development of inadequate infrastructure, but although these intentions are positive, delays to projects and other regulatory issues have weighed on revenues, and thus, developers’ ability to repay debt, said Moody’s Analytics.

On Asia, it said that non-performing loan ratios have been trending lower in Asia for more than a decade, though the trend may reverse in the coming years as economic and financial conditions shift. Some Asian economies are likely to experience an environment of slower gross domestic product (GDP) growth and higher interest rates in the coming years, which will make debt harder to repay.

“An increase in bad loans is also likely after Asia’s credit binge in recent years, which poses risk to the region’s banking systems and real economies,” Moody’s Analytics added.

Lending standards

Bad loans account for less than 5 per cent of all loans across most of Asia, below the rate that caused significant financial problems in the U.S. and many European countries in 2009.

“This can be attributed to more prudent lending standards among Asian banks since the 1997 Asian financial crisis and 2008 global recession and efforts by the authorities to increase credit ratings”.

Economic and financial conditions, including lower interest rates, steadily expanding economies, and rising asset prices have also helped ensure stability in credit markets.

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