Can India bank on its banks?

Chart of India’s world ranking in terms of nonperforming loans
India’s banking system has one of the world’s shakiest asset portfolios, and by all indications loan quality continues to deterioriate (source: macpixxel for GIS)
  • Careless corporate lending has gotten Indian public sector banks in trouble
  • The government has mainly responded with massive capital injections
  • More serious structural reforms have been hamstrung by political considerations

The deepening crisis in India’s banking sector reflects the slow and shallow character of economic reforms over the past 30 years. Today, 10.2 percent of the credits advanced by Indian banks have gone bad – more than double the global average of 3.9 percent, as computed by the World Bank. The latest Financial Stability Report by the Reserve Bank of India (RBI) identifies $150 billion in outstanding loans as “stressed” (the figure includes restructured debt that is no longer classified as nonperforming). Both numbers are expected to keep rising.

Globally, India is among the world leaders among economies with the highest ratio of nonperforming assets (NPAs) – in fifth place, according to a ranking by the Mumbai-based CARE Ratings agency. It is expected to bump Ireland (11.9 percent) and move into fourth place on the table in 2018.

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