The COVID-19 pandemic is set to burden the already burdened Indian banking system with more non-performing assets or NPAs. With the financial system facing severe strain already, two veteran central bankers have come together to identify the key problems and provide solutions.
The problems they point out are, India's debt-to-GDP ratio is only 60 percent. In many countries this ratio is over 100 percent, even over 200 percent. This gives the impression that banks are lending only to the rich and in which case there should not be any problem of NPAs. Yet India has the highest NPA, before COVID it was 8.5 percent of total loans. What is worse is that when you want to recover from NPAs, India's record is the lowest at about 25-30 percent. Therefore, there is a need to improve banks rather than depending on the government for more capital.
To discuss the problems and the solutions, Latha Venkatesh spoke to Raghuram Rajan, former Governor of RBI, professor at Chicago Booth School and Viral Acharya, former deputy Governor of RBI, professor at NYU Stern School of Business.