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Ajay Chhibber
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The author is Visiting Distinguished Professor at the National Institute of Public finance and Policy
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and Visiting Scholar at the Institute of International Economic Policy, George Washington University
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Is India Sliding Into A Banking Crisis?

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India must remember that the 1997 Asian financial crisis was exacerbated by tight monetary policy, forced on by IMF conditionality

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0.21% Of Infrastructure Indias Fastest-growing India Largest Recipient Of
Projects In Health Sector, State: Meghalaya (And World Bank Loans Over 70
Reflecting Low Priority Other Northeast Surprises) Years Make The Most O
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India may well be quietly sliding into a banking crisis. The revealed non-performing loans (NPLs) are over $50 billion but could
be as high as $200 billion just under 10 per cent of GDP and rising. If the banking problems are handled badly and if the
Top 5 devices in
global factors worsen, India could be headed for a full-blown banking crisis, and the rupee could appreciate to 80 against the US Augmented v/s Vi
dollar or even higher. Reality
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The finance minister was under pressure to sacrifice fiscal consolidation for growth. That he did not is good, because with jittery
global markets, the fiscal space he would have gained would have quickly eroded if portfolio outflows led to a weaker rupee. A
3 DIGITAL GROWT
weaker rupee has negative fiscal effects.
STORIES OF PHON
Unfortunately, Budget 2016 was unable to maintain the momentum on public investment we saw last year. The government COMPANIES
hopes to get more public investment through public-private partnerships and by urging PSUs to invest more. It also hopes to
readmore
raise more funding through the bond market. But all this remains uncertain.
The budget allocation of Rs 20,000 crore to deal with stressed assets is minuscule. A quick clean-up may require a level of
funding which only an IMF programme could provide but which the NDA government may not like to take on politically -
especially when it has touted India as the best performing global economy. But without a quick clean-up genuine recovery will
be inordinately delayed.
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Perhaps, the festering problems of the banking and corporate sectors would have been recognised earlier had we not been
seduced by upward revision in the new GDP figures. With the gross investment rate in 2015-16 falling below 30 per cent of GDP
Rupee depreciatio

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for the first time since 2006-7, and with many physical indicators slowing down, the need to review the new GDP numbers will continue for 1
becomes acute. If Indias GDP is growing at around 7.5 per cent then with a net investment rate of around 25 per cent of GDP, 18 months due to
the incremental capital output ratio is under 4 an unbelievably low number for a developing economy with large demonetization s
infrastructure. This means the economy is growing much slower than indicated by the new GDP growth rates. Karan Bhagat, MD
CEO, IIFL.
India is now growing on one engine: private consumption; private investment, exports and public investment are unlikely to readmore

increase in 2016-17. In 2015-16 much of the decline in oil prices was captured by the government to meet its fiscal deficit target
of 3.9 per cent of GDP. Had this oil windfall been passed on to consumers the boost in private consumption would have helped Demonetisation
economic recovery. endorsed by BJP w
in state polls, say
Going forward, the RBI could help by lowering interest rates, which may not increase investment but would boost private Minister Jayant Si
consumption. A good monsoon, larger allocations for the rural sector would also help increase rural demand. But if the recovery readmore

remains tepid for another year, the NPL problem will only grow larger.
India cannot affor
India must remember that the 1997 Asian financial crisis was exacerbated by tight monetary policy, forced on by IMF even short term
conditionality. The RBI is right in pushing the banks to come clean on their NPLs but must lower interest rates and ease liquidity losses says econo
in the system. Mohan Guruswam
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The government is in no position to cover the fiscal costs of a swift banking sector clean-up. So it hopes to rely on bank
consolidation and mergers. But this approach can work for one or two banks, not the entire public banking sector. If the NPL Demonetization w
problem continues to grow and the recovery remains weak, India could slowly slide into a crisis just like we did in 1991. Perhaps directly hit Politic
then and only then will we get the vital structural reforms that are badly needed to boost the economy. Police Mafia netw
says economist A
Virmani
The NDA government did not create these problems; it inherited them from the UPA. But by delaying the banks clean-up it risks
readmore
delaying the recovery and ending up into a larger crisis than was warranted. Time to bite the bullet.

We have had our 8

This article was published in BW Businessworld issue dated 'April 4, 2016' with cover story titled 'India's Fastest Growing Companies by demonetizatio
2016' says economist A
Chibber
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this readmore
publishing
house. Unless otherwise noted, the author is writing in his personal capacity. They are not intended and should not be thought to
represent official ideas, attitudes, or policies of any agency or institution.
Demonetization h
potential of being
Big Bang Reform
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moneycontrol.com
Choksey
V.B.Sastry | 8 Months ago Luxury Mansions
V. The Banks' problem is not failure to recognize NPAs. London Hot Mar
Properties
A Bank is left with no alternative but to seek recovery through a Decree to be issued in a Court of Law when a Mansion Global
debt is not repaid despite pressurising verbally and in writing. When a Bank which is a professionally Can You Guess Ho
organization subject to numerous audits has a debt not repaid in the normal course there is prima facie no Much Bacon Cost
dispute and, strictly speaking, there should be no need for the Bank to approach a Court of Law. The processes Your Birth Year?
in a Court of Law are so time-consuming that it takes almost a decade to get a Decree and Courts are averse to Consumer Price Index (CPI) - Inflation Calculato
Rates
granting attachment before judgement and issuing orders for borrowers deposit of the receipts/income with the Recommendedby
Bank or at least the Court.
The only way to make recovery of a debt not repaid as per the schedule initially agreed to by the Borrower
appears to be to empower and enable the lending Bank under Bankruptcy Code or SRAFESI to seize and sell the
Borrower's and the Guarantor's Assets (whether charged to the Bank or not) or hand over to a Receiver to
manage and deposit receipts/income derived with the Bank, without having to resort to court action. This is more
so where the default is attributable to diversion of funds, mismanagement and/or faulty Business Plan with
Assumptions not diligently verified and over-optimistic, unrealistic and/or unattainable projections. Where,
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however, the default is due to uncontrollable, unavoidable or unforeseeable factors contrary to reasonable
expectations in framing the Business Plan, the lending Bank should be exempted from the provisioning
http://businessworld.in/article/IsIndiaSlidingIntoABankingCrisis/2203201692192/ 3/5
12/4/2016 IsIndiaSlidingIntoABankingCrisisAjayChhibberBWBusinessworld
requirement; if the factors causing the default can be turned around the debt may be restructure and otherwise
recovered through seizure and/or other steps mentioned above.
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