The sharp rise in non-performing loans (NPLs) in Q1 does not indicate that there has been a sudden deterioration in asset quality in India, but instead suggests a greater recognition of stressed assets in the banking system that have been wilfully ignored for a number of years. Given also that parliament recently approved an overhaul of the country’s archaic bankruptcy laws, it is clear that efforts to revive the ailing sector are being stepped up. But the big picture is that the banking sector is likely to continue struggling in the absence of major capital injections and greater private participation.
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