India’s increase in credit to help small borrowers overcome the impact of Covid-19 risks fueling bitter debt, a former central banker has warned.
Prime Minister Narendra Modi’s government has provided a 4.5 trillion rupee ($ 62 billion) emergency credit program, along with loan guarantees, as a first line of defense to help sectors affected by the crisis. pandemic. The measures have fueled new concerns about asset quality in a country with the worst bad debt ratio among major economies.
“It is certainly a matter of concern that the regulator will have to watch very carefully,” Rakesh Mohan, former vice-governor of the Reserve Bank of India, said Wednesday in an interview with Haslinda Amin and Yvonne Man of Bloomberg Television. “We don’t know the actual impaired assets in the banking system, which are bound to be large.”
The state of those impaired assets with the banks will only become clear when the Covid situation wanes, said Mohan, who served at the RBI twice between 2002 and 2009. Lenders are already facing difficulties in collecting debts. contributions from small borrowers, he said.
Other points of the interview:
Although the economic recovery over the April-June period is “encouraging”, it remains lower than it was a few years ago. “We have to be a little careful in interpreting what is going on. The good news is the recovery of industry and construction.”
India’s central bank “will need to be somewhat nimble in response to what’s going on in the rest of the world” on policy standardization
It “would not be wise for the government to reduce fuel taxes” as the country has a “long term tax problem” and needs revenue
There appears to be a disconnect between economic growth and the stock markets, and “would expect a significant correction at some point”
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