You are here: Home » PTI Stories » International » News
Business Standard

Corporate debt overhang exerts drag on investment in India: IMF

Press Trust of India  |  Washington 

The corporate and associated sector credit quality concerns exert a drag on investment in India, the IMF today said in an apparent reference to the PNB scam involving billionaire diamantaire

Balance sheet vulnerabilities pose a downside risk to medium-term growth prospects in many emerging market economies, requiring policy action, the (IMF) said in its latest annual World Economic Outlook report.

"The corporate and associated sector credit quality concerns exert a drag on investment in India," it said.

The global was apparently referring to the massive Rs 11,400-crore fraud at the in which is the main accused.

According to the report, the recapitalisation plan for major public-sector banks announced in 2017 will help replenish capital buffers and improve the sector's ability to support growth.

"However, recapitalisation should be part of a broader package of financial reforms to improve the governance of public sector banks, and banks' debt recovery mechanisms should be further enhanced," the IMF said.

According to the report, in Turkey, limiting balance sheet currency mismatches and the high exposure to foreign exchange risk are urgent priorities, especially with monetary policy normalization under way in the and the (and the resulting possibility of a shift of capital flows away from emerging market economies).

Moreover, given that sudden repricing of term premiums remains a distinct possibility and that portfolio shifts could occur, it is important to mitigate rollover risk by avoiding excessive reliance on short-term borrowing.

"Regulators in have taken important measures to rein in and bring financial activity back onto bank balance sheets, where capital and provisioning requirements provide greater loss absorption capacity than in opaque off-balance-sheet channels," the IMF said.

Nevertheless, total credit growth remains high, it said.

"Early recognition of non-performing assets, a reduction of forbearance, and gradually unwinding of the system of implicit guarantees to better align borrowing costs with risk-adjusted returns remain essential for improving credit allocation and containing the accumulation of vulnerabilities," the IMF said.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, April 17 2018. 18:40 IST