ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Concentration, Collusion and Corruption in India’s Banks

Roots of the Bad Debt Crisis

Why would companies, for whom costs rise with higher interest rates, choose to amass credit as interest rates rise? Were more and more loans taken with the understanding that default would be inevitable? Only a commission of inquiry with a specifi c mandate to understand the years of loose lending by banks in India can answer these and other uncomfortable questions. These answers are needed in the interest of securing our economy, and indeed our democracy.

Generic issues around bank loans outstanding suggest that metastatic corruption may be affecting India’s financial sector. That corruption affects the Indian financial and economic system is hardly revealing. It takes two to tango, and it is useful to speculate on how the demand and supply of egregious behaviour might have worked itself out in creating the bad debt situation in Indian banking.

Let us consider the bad debt situation in India’s banking system. Such bad debts amount to anywhere between ₹5,00,000 crore and ₹10,00,000 crore or between $75 billion and $150 billion! Of these sums, wilful defaults account for around 20% or anywhere between $15 billion and $30 billion. These are due from borrowers that are simply behaving egregiously. Apparently, the other 80% of bad loans are not wilful defaults, implying that the economics of doing business in India are so bad that the businesses are unable to service and repay debts.

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