Weak Banks and Corporates Leave India Vulnerable, Says IMF

File photo of International Monetary Fund’s logo. (Reuters)

Washington: The IMF on Wednesday said a combination of weak banks and corporates leaves India vulnerable to a tightening in the global financial conditions, as it pressed for more steps to ensure good capitalisation in public sector banks.

A recent study, according to International Monetary Fund Financial Counsellor Tobias Adrian, showed that Indian banking sector was vulnerable given that large segments have low profitability and have large problem loans.

“We also found that Indian corporate remains highly leveraged and at high risks. So the combination of weak banks and weak corporates leaves India vulnerable to a tightening in global financial conditions,” Adrian told reporters in Washington.

Gross non-performing assets (NPA) of the public sector banks rose to Rs 6.41 lakh crore at the end of March 2017 as against Rs 5.02 lakh crore a year ago, according to a Finance Ministry data.

He welcomed the measures taken to address the problems of the banks, but said, “more needs to be done to ensure that there is good capitalisation in public sector banks and also to implement further public-sector banking reform.”