Letters of credit (L /Cs) feature prominently in the causes of Bank of India's (BoI's) losses in the quarter ending December 2017.

Essentially, the state run bank was forced to take account of L/Cs that were only identified in a central bank audit in its provisions for bad loans.

Problem debts

Bad loans have surged in the Indian banking sector in the last four years. India's 21 state lenders now account for the bulk of 9.46 trillion rupees (US$147 billion) in non-performing loans at the end of September 2017.

The Reserve Bank of India has said creditor banks must ensure at least 50 per cent of bad loans with those firms are provisioned by March 2018.

L/Cs unearthed

According to BoI, a central bank audit found additional non-performing loans of 141 billion rupees over and above those the state run bank had itself reported for the year to March 2017.

Out of the amount the central bank found, 94 billion rupees is made up of L/C obligations due from other banks. So far, BoI has recovered 47 billion rupees of these obligations.

The bank reported a net loss of 23 billion rupees (US$364 million) for the quarter ending December 2017 compared with a profit of one billion rupees in the same months in the previous year.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.