Category: Your Money

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The Reserve Bank of India (RBI), which regulates banks and sets interest rates, has a record of running a tight ship.
In 2008, for instance, banks were allowed to restructure weak loans without recognising them as bad debts; these now account for 3-4% of all loans.
The stock of all provisions held against all non-performing loans is lower than in other countries, particularly at the state-owned banks that dominate the industry.
Banks dominate lending, so the risk of problems hidden in the shadows of the financial system is small.
Infrastructure loans have risen quickly to account for about 15% of overall loans-not enough to bring the system to its knees, but enough to harm a handful of banks if any losses are unevenly distributed.
But as elsewhere, its banks are a reflection of its economy, warts and all.

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When markets wobbled, central banks slashed interest rates.
As a result governments are reluctant to cut the deficit too quickly for fear of sending their economies back into recession.
Turning to monetary policy, interest rates are 1.5% or below in most of the developed world and are negative in real terms (the Bank of England kept rates at 2% or more for the first 300 years of its existence).
But high debt ratios (particularly in the household sector) make central banks very uneasy about raising interest rates for fear of ushering in another round of the credit crunch.
Governments and central banks have thrown a lot of stimulus at the economy and the result has been a fairly sluggish recovery.

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