India risks ‘Japanification’ as bad loans surge, says Viral Acharya


By Anirban Nag

India is witnessing the return of a worrying trend of greater tolerance for loose lending and provisioning practices, which risks putting it on the same path that took Japan to the “lost decade” in the 1990s, former central banker Viral Acharya said.


“Certainty with the Covid shock, and as highlighted in the RBI’s financial stability report, the bad loans are likely to mount to 12%-15% region,” Acharya, who resigned last year as deputy governor of the Reserve Bank of India, said in an interview. “Given all that, Japanification is a serious concern and the way out of it is to raise capital in the financial intermediation sector. The time is now.”


The ex-central banker was referring to Japan’s experience in the 1990s when a weak banking and financial sector crippled activity and contributed to a lost decade of sub-par economic growth. The RBI sees the country’s bad-loan ratio swelling to the highest level in more than two decades — to 12.5% by March 2021, the highest level since 1999. If macroeconomic conditions worsen, the ratio may jump to 14.7%, among the highest in major economies.



India’s private banks have been racing to raise capital in recent weeks, while state-run lenders have been laggards. The government has infused Rs 2.6 lakh crore ($34.7 billion) into state-run banks in the last three financial years, more than double that in the previous nine years, but there is no provision for capital infusion in the budget this year.


“Potential output for the economy keeps changing and depends on the health of the financial system,” Acharya said. “The risk of forbearance in the banking sector is back on the horizon.”


Acharya, who had championed the autonomy of the central bank and health of the state-run banks during his time at the RBI, said India needs to set its public finances in order by conducting big-ticket disinvestments including privatizing lenders, setting up an independent fiscal council to vet the accounts and boost spending on health and infrastructure by curtailing revenue expenditure.


He also said the inflation targeting mechanism had worked well for India. As such, there was no need to indulge in any “adventurism” by tweaking or refining the target especially given the fog of uncertainty that has enveloped the economy, he said.




译文来源:三泰虎 http://www.santaihu.com/p/50444.html    译者:Jessica.Wu

Naynesh Sheth

We are only good in clapping, prayers, ringing bells etc, when it's comes to economics we r very bad enough because loan taker are also not serious about paying them back because they do business for themself and not for progress of country.



Yeshwant Pande

Though the situation is similar the results will be totally different because Japan could recover as they are sincere, honest 100 times that of Indian and hard working. We have no such Bad habits We could face n stand 2008 because of presence of a person like Dr.MMS , what these bunch of idiots will do except asking citizens to clap hands, pray god, ring the bells, build some more temple.



Dillip Patnaik

At this juncture India has to well manage the spread and cure and prevention of Coronavirus. There should be plenty of supply of food supply for the unemployed mass. Once India out of Coronavirus cloud got to spend money on mass training for the industrial production and agriculture production. Central bank can provide easy loans for small and medium scale industries and reval of old industries. Government can spend money on road and bridges and military industries to speed up economy.



Pramendra Khokher

The bad situation only turned worse with the pandemic



Pooja Suvarna

Indian companies need to think global in whatever it does. In other words don”t be a frog in a well, prepare and be frog in a ocean ready to cater to the whole world.



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