THE TIPPING POINT
When India entered its Covid-19 lockdown in March 2020, it was evident there would be major economic repercussions. While GDP growth, which crashed to -23.9 per cent in the first quarter of fiscal 2021, headlined the damage report, a less visible and mounting crisis is the enormous pressure on the banking sector, especially public sector banks.
In January this year, the Reserve Bank of India (RBI) warned of a looming credit crisis, projecting that the gross NPA (non-performing assets or bad loans) ratio for Indian commercial banks would increase from 7.5 per cent in September 2020 to 13.5 per cent in September 2021. If the macroeconomic environment worsened, the ratio could even rise to 14.8 per cent, the central bank warned. (The gross NPA ratio, a measure of the banking sector’s health, is the overall percentage of bad loans to total loans issued.) This doubling of NPAs will obviously weaken banks—they will have to make provisions
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