My last column, Are Indian banks heading for a crisis?, has evoked extreme reactions from many. The head of a large foreign bank has found it interesting but a senior public sector banker says I have sensationalized the issue as state-run banks are adequately capitalized to take care of bad assets. He also doesn’t see anything wrong in restructuring loans.
Bad assets grew 46% in FY12, nearly three times the pace of banks’ loan books. A recent report by Credit Suisse Group AG pointed out that exposure to 10 large industrial groups constitutes 13% of the entire Indian banking system’s loan assets. This means the concentration risk for the Indian banking system is rising.
There’s no quickfix to curb inflation but the govt can take several steps. India’s wholesale price inflation in July slowed to a 32-month low of 6.87%.
The stock market has given a warm welcome to P. Chidambaram’s return to the finance ministry. In his first address to the media, Chidambaram announced a review of the retrospective amendment to the Income Tax Act to bring back investor confidence.
After the cut in SLR, all banks should be able to cut loan rates, at least in some segments. But, this is easier said than done. Barring a few exceptions, most banks’ bad loans are rising.
A one percentage point cut in banks’ investments in government bonds, lowering the floor for such holdings from 24% to 23%, is a surprise, particularly when the government is set to borrow a record Rs.5.7 trillion from the market to bridge its projected fiscal deficit, equivalent to 5.