06 September 2013

India's Banks

Nearly a year ago I wrote a post titled "Why India's Banks Shouldn't Be But Still Are in Business." Does anyone remember my description of the parlous state of India's banks? Of course you don't but if you'd care to read what I wrote you can go here.

To be filed in the "I told you so category," go here and read a recent article in The Financial Times: "India Crisis Threatens Big Hit on Banks." (Subscription required--but it's free.) My only complaint is not with the report but with what Raghuram Rajan, the new governor at the Reserve Bank of India, had to say about the situation: “The bad loan problem is not alarming yet, but it will only fester and grow if left unaddressed.”

The situation is bad.  And with the credit of the Government of India being what it is, there's no prospect of a bailout as we saw in the U.S. in 2008/2009. Politically, I don't foresee a "bail-in" like Cyprus although some combination of the two might work. In any event, I'm not predicting what will happen next.

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