Rising bad debt risks insolvency at Indian banks

Subject

India's public sector banks and bad debt.

Significance

While India is being lauded for being the fastest-growing economy in the world, the government is grappling with a growing bad debt problem that threatens the solvency of at least some of its public sector banks.

Impacts

• If the government prioritises its fiscal deficit targets, financing bank bailouts would be difficult.
• Meanwhile, banks will cut lending, thereby choking growth.
• Absent a clear policy, the banking strain could intensify, leading to the actual failure of some banks.