Poor sell

31 March 2017 By Una Galani Follow @ugalani

In a poor democracy, it is particularly tricky to justify using taxpayers’ money to prop up banks which made dodgy loans. Meanwhile, state-owned lenders are scared of being accused of selling bad assets too cheaply. Any comprehensive bank cleanup will have to address both issues.

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Convincing the Indian public to accept a bank bailout would be politically tricky, Chief Economic Adviser Arvind Subramanian told journalists on March 29 at the Credit Suisse Asian Investment Conference in Hong Kong.

Subramanian said that setting up a state-backed bad bank would provide political cover for agreeing writedowns or debt forgiveness, and help to establish a transparent system for valuing loans.

“If you are seen to be favouring the rich guy in such a system it is politically very difficult to navigate”, Subramanian added, stressing India has a high level of poverty and inequality.

Any solution to India’s bad debt problems would have to be in the public sector in some form because otherwise people would not accept it, he said.

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Subramanian said that setting up a state-backed bad bank would provide political cover for agreeing writedowns or debt forgiveness, and help to establish a transparent system for valuing loans.

“If you are seen to be favouring the rich guy in such a system it is politically very difficult to navigate”, Subramanian added, stressing India has a high level of poverty and inequality.

Any solution to India’s bad debt problems would have to be in the public sector in some form because otherwise people would not accept it, he said.

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