The government has provided Rs 9,000 crore to Exim Bank of India as some of the loans extended to foreign countries turned into non-performing assets (NPAs). The bank had to invoke the government guarantee on these loans, which were given to some African countries over a decade ago.
What are foreign loan NPAs?
Foreign loan NPAs are loans that are given to other countries by Exim Bank of India, a development finance institution run by the central government to support its diplomacy efforts. These loans are classified as NPAs when the borrower countries fail to repay the principal or interest on time or at all.
According to a senior government official, some of the loans given to African countries under the Indian Development and Economic Assistance Scheme have turned into NPAs. These loans have been classified as doubtful, but not written off .
Why did Exim Bank invoke the government guarantee?
Exim Bank of India invoked the government guarantee on these loans as it was facing a liquidity crunch due to the non-repayment of these loans. The government guarantee is a contractual obligation by the government to pay the lender in case the borrower defaults.
The Ministry of External Affairs (MEA) provided Rs 9,013.72 crore to Exim Bank in 2023-24 after it invoked the government guarantee on these loans . The MEA has also provided a further Rs 4,383.40 crore in 2024-25 towards payment to Exim Bank towards guarantees that may be invoked against doubtful debts, indicating more such loans to countries might get classified as NPAs in the coming years .
How does Exim Bank manage its asset quality?
Exim Bank of India has been taking steps to improve its asset quality and reduce its NPAs. The bank has reported more than doubling of its net profit to Rs 254 crore in FY21 as its bad loans dipped . The bank’s slippage ratio improved by 0.42 per cent to 1.52 per cent and its net NPA ratio came at 0.51 per cent in FY21, down from 1.77 per cent in FY20 . The bank’s provision coverage ratio also improved by nearly 8 percentage points to 96.74 per cent .
The bank’s managing director David Rasquinha said that 97 per cent of the stock of NPAs is from legacy dud assets, which had resulted in a rise in NPA ratio in the past and only 3 per cent of the stock are loans given after April 2017 . He also said that the bank is closely monitoring its loan accounts and looking at the promoters of the companies to put more money into the business rather than relying on loans .
What are the prospects for Exim Bank’s growth?
Exim Bank of India is cautiously optimistic about its growth prospects in FY22. The bank is aspiring to grow its book by 7-12 per cent on a currency neutral perspective . Rasquinha said that major markets for Indian exporters like the US and Europe have already recovered which will lead to greater role to be played by the bank for supporting domestic exporters .
The bank is also exploring new opportunities in emerging markets like Africa, Latin America and CIS region, where it has extended lines of credit to support Indian projects and exports . The bank is also focusing on enhancing its non-fund based business such as guarantees and advisory services .