India’s bad loan problem is getting worse. As chart 1 shows, gross non-performing assets (GNPAs) of public sector banks have soared to Rs 6.2 lakh crore at the end of Q3 FY17 — an increase of over 56 per cent over the previous year. GNPAs of public sector banks are now at a staggering 11.2 per cent of their advances.

For some banks the situation is worse. As chart 2 shows, GNPAs of five banks namely Indian Overseas Bank, UCO Bank, United Bank, IDBI and Bank of Maharashtra are now more than 15 per cent of their advances. In Q3, the incremental addition to NPAs was the ...