Despite recent improvements in India’s economic stability, the hangover from India’s credit fueled boom isn’t over yet. Estimates of the percentage of bank loans that are “impaired” — where repayment of the loan is classified as doubtful — run as high as 9%. Following the global financial crisis in 2008 and 2009, India joined countries around the world in rapidly pumping money into the financial system to prevent a prolonged global recession. The strategy of cheaper and more available money, much of it flowing through India’s banks, succeeded and resulted in the country’s growth. However, overreliance on interest-rate sensitive bank loans, slowing global GDP growth rates, and uncertain domestic economic policies exposed the vulnerabilities of India’s banks. Bad debts and missed loan repayments started to pile up quickly. The consequences of shortcomings in the insolvency process are far-reaching since bad debts can create difficulty in extending new loans even in good economic times.The Indian government has undertaken some important steps to address the bad debt problem. India’s Finance Ministry within the newly elected Modi administration shifted away from its historical tendency to recapitalize India’s public sector banks with taxpayer money. Instead, it has publicly favored selling equity stakes in public… Read full this story
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