In India, the number of non-performing loans (NPLs) is growing. The central government has a number of tools at its disposal to remedy the scale of the problem, and Prime Minister Narendra Modi will use the situation as an opportunity to exert greater central authority over the financial system. This Deep Dive will discuss the economic difficulties facing Indian banks and interpret these financial challenges in light of Modi’s overarching political strategy to increase centralization of command.
NPL growth affects both corporate profitability and banks’ balance sheets; if this issue is not resolved, it could threaten economic growth because the availability of credit will be reduced, causing a decrease in investment.
NPLs are a real challenge for India but not an insurmountable one; furthermore, the banking system is not at catastrophic risk.
To date, solutions to the NPL situation have been characterized by a lack of political coordination, which Modi i