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Undeveloped bond market contributes to India's banking crisis, says CAG

The gross NPAs in the Indian banking system have accumulated to a staggering Rs 10 trillion

Economy  |  Financial Services  |  Banking

IANS  |  New Delhi 

Rajiv Mehrishi
CAG Rajiv Mehrishi | File photo

The major reason for the crisis being faced by is the absence of a developed bond market in the country, the official auditor said on Tuesday.

Speaking at the launch of the Indian School of Public Policy here, maintained that the root-cause of the crisis was neither the scams nor the non-performing assets (NPAs) but a result of being constrained to lend for long-gestation projects, many of which had stalled due to various factors.

"Of course, the thefts, the NPAs have all contributed to the crisis, but it originates elsewhere... has no bond market, so have been forced to lend for long-gestation infrastructure projects which have then run into trouble," he said.

"The absence of a bond market has been the major cause of the country's crisis."

The gross NPAs in the Indian banking system have accumulated to a staggering Rs 10 trillion, around 90 per cent of which is accounted for by .

"This asset-liability mismatch is due to the lack of debate on public policy in India," the CAG said.

On the various scams in that have come to light, the national auditor held the banking regulator Reserve of responsible for the systemic lapses.

"What was the regulator doing all this he, or is he not, accountable for the lapses that led to the scams," Mehrishi asked.

Industry chamber said earlier this month that the successful resolution of the NPA issues through the new Insolvency and Bankruptcy Code (IBC) will help deepen India's corporate bond market that is highly concentrated in AAA-rated bonds.

Citing its study jointly conducted with rating agency Crisil, the industry chamber had said: "India's corporate bond market, which contributes 17 per cent to the country's GDP and is highly concentrated in the AAA-rated bonds, is expected to change once the IBC brings about successful resolution of stressed assets in a time-bound manner."

It said that countries like Brazil, Russia, and the UK had taken steps to reform the bankruptcy laws which, along with other structural reforms, led to a significant growth in the corporate bond market within their financial markets.

First Published: Tue, October 23 2018. 20:20 IST