India's bad debt redux looks less painful - Reuters

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A man shows a thousand rupee note in this illustration photo taken September 7, 2018.

MUMBAI, July 2 (Reuters Breakingviews) - Consumption and activity are rebounding fast after India’s brutal second viral wave, but the central bank’s latest financial stability report hints at some of the credit pain left behind.

India’s borrowers have received scant support compared to their counterparts in developed economies. The probability of default for Indian retail counterparties to European Union banks, for example, increased to 8.6% in the fourth quarter of 2020, up from about 5% a year earlier. For a group of six rich countries, including France and Germany, that figure fell or held steady over the same period.

Hence the sombre results from the Reserve Bank of India’s stress tests. Gross non-performing loans might rise from 7.5% in March 2021 to 9.8% by March 2022, or as high as 11.2% if economic conditions worsen. Yet analysts at Macquarie point out actual bad debt levels have undershot projections for the last three years. There’s another bright spot too; the RBI reckons that even in a worst-case scenario, no domestic bank’s core common equity Tier 1 capital will fall below the minimum required. India’s post-pandemic debt legacy might prove manageable. (By Una Galani)

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Editing by Pete Sweeney and Sharon Lam

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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