Indian Banks: It's the NPLs, stupid

Indian Banks: It's the NPLs, stupid

Since the Punjab National Bank revelations, more banks have followed disclosing fraudulent practices.

India's banking crisis is becoming an inflated political football: a blame game where the current government (NDA) is seeking to castigate the opposition (UPA) for the fraud carried out on its previous watch. The NDA can frame the whole debacle as a crackdown on UPA corruption, and announce wide sweeping reforms, falling short probably of outright privatisation.

The current government is coming down hard on the sector. The crackdown will have ramifications for the sector. With the current situation of arrests (chairperson of UBO and Punjab National Bank auditor) and raids, many bank executives will become increasingly risk averse and loan criteria is already being tightened. This will impact lending and growth.

Investors are also, unsurprisingly, becoming risk averse. The failure of AXIS bank to raise money in the bond market comes in stark contrast to the recent benign reception to Indian bank paper.

The blurring of fraudulent and non performing loans is occurring. It may suit some politicians to classify NPLs as fraudulent loans. NPLs have just become politicised.