NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, January 29, 2018

While pledging 880 billion rupees ($13.86 billion) in aid to state-owned banks on Wednesday, India’s Finance Ministry also handed out a set of guidelines that it wants lenders to conform to that will help clean up the financial system.

The ministry said that it wants lenders to work on improving customer responsiveness, responsible banking, deepening financial inclusion and digitalization, and staff development. At the heart of all this would be a drive to weed out corruption and improve efficiency.

Indeed, public-sector banks in India are in a bad way. Bad loans in the sector have piled up to around 7.34 trillion rupees as of the September quarter. Many of the banks that are receiving huge capital infusion this round are exposed to companies in bankruptcy proceedings.

IDBI Bank, which will receive 106.1 billion rupees in aid, has a nonperforming loan ratio of 16.1% as of September. It has exposures in companies such as Bhushan Power & Steel which has defaulted on loans worth 372.48 billion rupees, and Lanco Infratech, against which it has initiated insolvency proceedings.

Photo courtesy of Satish Krishnamurthy.