Quick Edit: Bad Debts Have Fallen

For a banking system that has been grappling with a heavy load of bad loans for the better part of the past decade, the latest data comes as a breath of fresh air. On Thursday, Reserve Bank of India (RBI) governor Shaktikanta Das said the sector’s gross bad loans are set to fall to 4.4% at the end of 2022. Also, the capital adequacy ratio of the banks stood at 16.1% at the end of December. Well above regulatory requirement. The bad loan ratio is the lowest since March 2015. These figures show that our banks have come a long way from their worst days when bad loans reached double digit levels. Now that lenders have this problem under control, they should be able to lend with more confidence. Of course, the risk-control measures adopted in recent years should remain in place, especially as America’s troubled banking system has shown the dangers of regulation with a very light touch. If banks are too systemically important to fail and should be bailed out if they are on the brink, it is prudent to regulate them with the strictness necessary to prevent failure. This is better than the moral hazard arising out of the feeling that no big bank will be allowed to collapse.