Shankkar Aiyar, Visiting Senior Fellow at IDFC Institute, writes on the crisis in the banking sector, in this New Indian Express article. Excerpts:

"India’s banking sector, dominated by public sector banks, is at the cusp of a systemic stall.  At stake is individual trust and institutional interests. The facts are stark. India’s banks, as on May 25, 2018, hold about Rs 110 lakh crore of hard-earned money belonging to the public. Of this, 74 per cent, or around Rs 80 lakh crore, is in 21 government banks. How are the banks doing? In 2017-18, of the 21 public sector banks, 19 reported losses, of Rs 87,357 crore—a sum the Central government will spend this year on the prime minister’s schemes for micro irrigation, rural roads and national missions for drinking water, Swachh Bharat, education and skill development.

Eleven of the 21 banks have been put under “prompt corrective action” (PCA) by the RBI. Essentially every second PSB, its capital eroded, is precluded from normal banking. Nine of the 11 banks have GNPAs of over 15 per cent—IDBI Bank tops the chart at 27.95 per cent. The fourth quarter results suggest that six more could be brought under PCA, taking the score to 17 out of 21.

The NPAs stem from the hubris of 2007, the global financial crisis, the telecom and coal scandals and the UPA II policy paralysis—worsened by banks which rolled over to rollover loans. In March 2018, PSBs held bad loans of Rs 9 lakh crore—close to what was collected as taxes on income from companies and individuals in 2017-18. The swamp of stressed loans is yet being drained and there is the threat of power sector loans going bad. The figure could cross Rs 11,000,000,000,000 aka eleven trillion rupees."

Read the full article here.