India’s banking crisis deepens

published 10 October 2019

Yes Bank "could use a helping hand", says Una Galani on Breakingviews. Bad loans at the private-sector bank the fourth-largest in India by assets are rising and the lender needs fresh capital to plug the gap. But with its shares down by 80% this year, investors are reluctant to step forward. And India has "no up-to-date framework on how to deal with troubled financial institutions", so it's unclear how the policymakers will resolve the issue, even though it's certain that "allowing Yes Bank to flail would be the worst decision".

Yes is "a particularly marked example", but it is "not alone in its troubles", says The Economist. "India's banks are obviously faltering" as they deal with "the overhang from a splurge of bad lending years ago" much of it to struggling property developers, industrial groups and to non-bank lenders (several of which have failed over the past year). In one example, police are investigating an alleged "vast lending fraud" at Punjab & Maharastra Co-operative Bank (PMC), a small lender that had 70% of its loan book tied to one bankrupt property developer.

The latter marks a new phase in the crisis because it's the first deposit-taking institution to fail, says Andy Mukherjee on Bloomberg. That could send savers fleeing to the most reliable banks, worsening the liquidity of weaker ones."PMC Bank is too tiny to pose a systemic threat, but a small dead canary in a coal mine is still a large warning sign."

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Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.

India’s banking crisis deepens

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