A 'bad bank' to clean up India's $27bn debt mountain

With more than 150,000 branches loaded with $2tn (£1.46tn) worth of deposits and serving over a billion customers, India's banks look impressive on paper.

In reality, they are in a mess.

A clutch of banks is saddled with tens of billions of dollars of bad loans after years of injudicious lending to dud projects. State-owned banks account for more than 60% of the sour debt. Five banks have been rescued from collapse since 2018.

Bad loan recoveries have traditionally been low - up to a third of total loans - and have only improved a bit (40-45%) after a 2016 bankruptcy law which allows for liquidation of assets. And now borrowers hit by the pandemic could further default and add to the soaring debt in the coming months.

The bailouts - more than $35bn of taxpayers' money was injected to revive ailing banks between 2005 and 2009 alone - haven't helped much. In July last year, Fitch Ratings said India's struggling banks would need between $15bn-$58bn in infusion of fresh funds by 2022.

Now the government plans to float a long talked-about "bad bank" which will try to tame $27bn of bad loans and clean up the balance sheets of commercial banks.

Read more : https://www.bbc.com/news/world-asia-india-58654740