The Economist praises Modi govt for revitalising Indian banking sector
On Thursday (May 11), the British weekly newspaper The Economist praised the Modi authorities for reviving the banking sector in India and turning spherical its profitability.
In an article titled ‘India’s once-troubled banks are producing monumental earnings’, it acknowledged, “…Indian banks’ recent annual earnings have been spectacular…India’s state-owned banks generate, on average, over 11% and private banks almost 15%. In a development few, if any, predicted, Indian banks are among the world’s most profitable.”
The Economist well-known that the chapter reforms [pdf] launched by the Narendra Modi authorities in 2016 helped throughout the quick liquidation of failing companies and as well as pressured ‘delinquent businesses to pay up.’
Only continued success will current that Indian finance has actually modified https://t.co/MDuw95BRCT
— The Economist (@TheEconomist) May 13, 2023
The British newspaper recognized that the merger of 27 nationalised banks into merely 12 and capital infusion throughout the struggling banking sector paved the way in which wherein for his or her revival.
“In 2019, as part of the seemingly endless mop-up of Indira Gandhi’s banking nationalisation half a century ago, the government announced that 27 state-owned banks would become 12, with many branches closing,” it acknowledged.
“According to Boston Consulting Group, state banks have also written off $91bn in bad loans in the past five years—just a little less than their combined worth. Many survived thanks to an infusion of 2.6trn rupees ($31bn) from the state, in return for shares, over the past three years. Such infusions have more recently been curtailed, as banks have learned how to stand on their own feet,” the article added.
The Economist emphasised that these measures launched by the Modi authorities helped throughout the basic acceleration of Indian monetary growth. “As the system has become healthier, banks have lent more. Annual credit growth slowed to 3% in 2017. It is now up to 18%. Interest rates have risen less sharply than in America, helping limit stress,” it acknowledged.
Indian banks confirmed enchancment even all through Covid-19 pandemic: Report
The British weekly newspaper moreover hailed the system of ‘asset-quality review’, which was launched by former RBI governor Raghuram Rajan in 2015. While it led to failures and write-downs initially, the consider proved helpful 5 years down the highway.
The Economist recognized that Indian banks confirmed early indicators of enchancment by means of the Covid-19 pandemic, no matter mass lockdowns. It mentioned, “Non-performing loans peaked at 16% of corporate lending in 2018. They have since fallen sharply. By early 2024, predicts Crisil, a ratings agency, they should drop below 2%.”
Screengrab of the data report by The Economist
The Economist slams UPA-era system of rolling over unhealthy loans
The British weekly newspaper recognized how the apply of ‘rolling over bad loans’ was rampant by means of the primary half of the 2010s (aka the Congress-led UPA interval).
“During the first half of the 2010s, Indian banks reported numbers that were strong—but unbelievably so. The practice of rolling over bad loans to avoid recognising losses was rampant, particularly with those made by state banks to borrowers with political connections,” it underlined.
The Economist mentioned, “Reality would have intruded eventually; an accelerant came in the form of scandals over the allocation of government licences in industries including coal, which concluded with the Supreme Court cancelling hundreds of mining permits in 2014, and telecoms, with the surprising exoneration of defendants in 2017. Approvals for projects froze, undermining their financial viability,” it observed.
