IN JULY 1969 India’s embattled prime minister, Indira Gandhi, sacked her finance minister and took the job for herself. The next day she told a senior bureaucrat to take 14 of India’s biggest private banks into public ownership. Nationalisation was cheered in the streets. Banks were seen as servants of rich industrialists that ignored the needs of poor folk. The work of a few hours transformed the prime minister’s political fortunes.
These days public-sector banks can scarcely raise a loan, never mind a cheer. Credit growth in India is feeble (see chart 1). A large and growing chunk of the loans advanced to firms during an investment boom that ended in 2012 is turning bad. Problem loans in India’s public-sector banks—those that are six months or more in arrears plus those whose terms have been altered to make repayment easier—were 12% of their assets at the last count (see chart 2). The mess is larger than at privately owned banks and is of greater importance, because public-sector banks account for more than 70% of India’s stock of loans. A growing concern is that the banks are so hampered by bad assets from the last boom that they are unable to...
from The Economist: Finance and economics http://ift.tt/1QteH61
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