Mr Jaitely, Where Will The Money For Public Investment Come From?

Fostering Public Leadership - World Economic Forum - India Economic Summit 2010
On the last page of his magnum opus The General Theory of Employment, Interest and Money, the British economist John Maynard Keynes wrote: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”

One of the ideas of Keynes that has never become ‘defunct’ so to say, is that of governments needing to spend more when the economy is in trouble. In The General Theory, Keynes went to the extent of saying: “If the Treasury[i.e. the government] were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again … there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”

How would this help in reviving the economy during bad times? Raj Patel explains this in The Value of Nothing as follows: “Keynes suggested, rhetorically, that if they lacked the imagination for anything more creative, governments could simply bury bottles of money under tons of trash, and that this would help get the economy going. It may sound bizarre, but it would certainly be worth someone’s while to dig up free money. To find these banknotes would require workers. Those workers would need to pay for food and shelter and everything else they needed to survive while they dug. The grocers who fed them and the landlords who rented to the workers would then have cash to spend, which they would use to buy other goods, and so on. This is called the “multiplier effect,” and it’s the added return that a government gets from spending its money in the economy.”

Keynes’ The General Theory was first published in 1936 and since then politicians all over the world have latched on to the idea of the government having to increase public spending when times are tough.

The finance minister Arun Jaitley is not different on this front. As he recently said: “Public investment has been stepped up in the last year and it will continue to remain stepped up… When you fight a global slowdown, public investment has to lead the way.”

In an environment where corporate balance sheets are stressed and public sector banks are in a mess, this might seem like the best way forward. But that is a very simplistic way of looking at things. The question is where will the money to pay for this public investment come from? And how will the government meet this expenditure and at the same time ensure that the fiscal deficit does not go up? Fiscal deficit is the difference between what a government earns and what it spends.

In the budget speech Jaitley made in February 2015, he had said: “I will complete the journey to a fiscal deficit of 3% in 3 years, rather than the two years envisaged previously.  Thus, for the next three years, my targets are: 3.9%, for 2015-16; 3.5% for 2016-17; and, 3.0% for 2017-18.”

From what it looks like, Jaitley is unlikely to meet the fiscal deficit target of 3.5% of the gross domestic product (GDP) in 2016-2017, the next financial year. In fact, the Mid-Year Economic Analysis released by the ministry of finance in December 2015 has hinted at this very clearly.
As the Economic Analysis points out: “If the government sticks to the path for fiscal consolidation, that would further detract from demand…[Fiscal] consolidation of the magnitude contemplated by the government… could weaken a softening economy”. Fiscal consolidation is essentially the reduction of fiscal deficit, along the lines Jaitley had talked about in his budget speech.

What this clearly tells us is that the government is more serious about public investment than meeting the fiscal deficit target. The question is where will the money to finance public investment come from? As I explain here, the total cost of implementing the recommendations of the Seventh Pay Commission and One Rank One Pension will come close to Rs 1,40,000 crore, if the Railways is not bailed out by the government. Over and above this, food and fertilizer subsidies of more than Rs 1,00,000 crore, continue to remain unpaid. This doesn’t leave much scope for public expenditure, unless the government leaves the subsidy bills unpaid.

Further, there are other things that need to be looked at. Take a look at the following table and the debt servicing ratio of the government.




Debt servicing is defined as the amount of money a government spends towards repaying the debt as well as paying interest on the outstanding debt. The debt servicing ratio is obtained by dividing the money spent towards debt servicing by the revenue receipts i.e. the income of the government. What the table clearly tells us is that the debt servicing ratio of the government has worsened over the years.

In 2015-2016, the government is expected to spend close to 60% of what it earns in servicing its debt. And this is clearly not healthy. Any further worsening of the fiscal deficit will only mean a greater amount of government revenues going towards servicing its past debt in the years to come. This will leave a lower amount of money for other more important things, in the years to come. Debt servicing is defined as the amount of money a government spends towards repaying the debt as well as paying interest on the outstanding debt. The debt servicing ratio is obtained by dividing the money spent towards debt servicing by the revenue receipts i.e. the income of the government. What the table clearly tells us is that the debt servicing ratio of the government has worsened over the years.

Also, most analysts and experts tend to just look at the fiscal deficit of the central government, without taking into account the fiscal deficits of the state governments as well. As economist M Govinda Rao wrote in a recent column in The Financial Express: “This year, the Union government’s deficit is set at 3.9%, and with the states together having a deficit of about 2.2%, the aggregate fiscal deficit of the government works out to 6.1%. It is reported that 21 distribution companies are likely to join the UDAY scheme and the deficit on that account could be about 1%.”

If we were to add all this the real fiscal deficit of the government would come at 7.1% of the GDP. The household financial savings in 2014-2015 stood at 7.5% of GDP. What this tells us very clearly is that the government captures most of the household financial savings. Any further increase in fiscal deficit leading to increased borrowing by the government will only push up interest rates. Also, Rao estimates that public sector enterprises claim around 2% of the GDP. Hence, as he asks “where can financial institutions find the money to lend for private investment?”

Over and above all these numbers the credibility of Arun Jaitley is at stake as well. In his maiden budget speech in July 2014 he had said: “We need to introduce fiscal prudence that will lead to fiscal consolidation and discipline. Fiscal prudence to me is of paramount importance because of considerations of inter-generational equity. We cannot leave behind a legacy of debt for our future generations. We cannot go on spending today which would be financed by taxation at a future date.”

In his February 2015 speech Jaitley went against what he had said earlier and loosened the fiscal strings a little. If he does that again this year, how much credibility would what he says, continue to have? Also, is Jaitley still worried about inter-generational equity? Or was what he said in July 2014 innocent murmurs of a new finance minister, which should not have been taken seriously?

Further, there has been very little effort on part of the government to take tough decisions on the expenditure front. It continues to fund loss making entities like MTNL, Air India etc. The finance ministry had set up the Expenditure Management Commission in 2014. The reports of the Commission have not been made public up until today. This clearly tells us how serious the government is about cutting wasteful expenditure.

Also, there has been very little new thinking on part of the government in order to increase its income. Even low hanging fruit like the stake the government holds in companies like ITC, L&T and Axis Bank, through the Specified Undertaking of Unit Trust of India (SUUTI)., hasn’t been cashed in on. All the government seems to be doing to increase its revenue is to increase the excise duty on petrol and diesel.

It is also worth asking why does the fastest going large economy in the world need a fiscal stimulus from the government?

To conclude, since I started this column with Keynes it is only fair that I end it with him as well. One of the misconceptions that people have is that Keynes was an advocate of the government running high fiscal deficits all the time. It needs to be clarified that his stated position was far from that.

Keynes believed that, on an average, the government budget should be balanced. This meant that during years of prosperity, governments should run budget surpluses. But when the economic environment is weak, governments should spend more than what they earn, and even run high fiscal deficits.

But over the decades, politicians have only taken one part of Keynes’ argument and run with it. The idea of running deficits during bad times has become permanently etched in their minds. However, they have forgotten that Keynes had also wanted them to run surpluses during good times as well.

Jaitley is a politician, he is no different from others of his ilk.

(The column originally appeared on SwarajyaMag on January 7, 2016)

In 2016, banks will continue to kick the bad loans can down the road

In June 2015, the Reserve Bank of India(RBI) came with the strategic debt restructuring(SDR) scheme. This scheme allows the banks to convert a part of the debt owed to them by corporates into equity and is actively being used to kick the bad loans can down the road.

As the RBI notification on the SDR scheme pointed out: It has been observed that in many cases of restructuring of accounts, borrower companies are not able to come out of stress due to operational/ managerial inefficiencies despite substantial sacrifices made by the lending banks. In such cases, change of ownership will be a preferred option.”

Under the corporate debt restructuring scheme banks restructured loans by lowering the interest rate charged to the borrower or the borrower was given more time to repay the loan i.e. the tenure of the loan was increased, among other things.
But the restructuring did not help with a good portion of the restructured loans between 2011 and 2014, turning into bad loans. Crisil Research puts the number at 40%.

Further, as Parag Jariwala and Vikesh Mehta of Religaire Institutional Research write in a research note titled SDR: A band-aid for a bullet wound: “Indian banks went on a massive restructuring spree over 2012-2013 and 2013-2014. The corporate debt restructuring (CDR) cell received 530 cases till March 2015 from banks looking to restructure debt aggregating to Rs 4 lakh crore without classifying these accounts as NPAs.”

But this did not work. As Jariwala and Mehta point out: “On the whole, the success of CDR packages in rehabilitating stressed assets remains in question – the failure rate for the above restructured cases has increased to ~36% in September 2015 from 24% in September 2013. Out of the 530 cases received, close to 190 cases aggregating to Rs 70,000 crore have exited CDR due to repayment failures.” Most of these failures have been with regard to loans where banks had entered into a moratorium of two years with corporates, for repayment of principal amount of the loan.

One of the reasons for the failure of CDR has been the lack of interest and cooperation from the promoters who had taken on bank loans. Their intention has been to default on the bank loans they have taken on. SDR has been initiated to address this problem.  As Ashish Gupta, Prashant Kumar and Kush Shah of Credit Suisse write in a research note titled Failed CDR now SDR: “SDR allows banks to convert part of their debt to equity to take controlling stake (at least 51%) in the stressed company and thereby, banks can effect change in ownership wherever existing management is not performing. This gives banks significant power while dealing with non-performing or non-cooperating promoters.”

The idea with SDR is to convert the weak bank debt into equity and then sell the equity to a new promoter, and recover the money owed to the banks by the corporate. As the RBI Annual Report for 2014-2015 points out: “RBI and SEBI have together allowed banks to write in clauses that allow banks to convert loans to equity in case the project gets stressed again. Not only will such Strategic Debt Restructuring give creditors some upside, in return for reducing the project’s debt, it can also give them the control needed to redeploy the asset (say with a more effective promoter).”

SDR allows banks to postpone asset classification of a loan for a period of 18 months. This means that if a loan is in the process of turning into a bad loan and the bank has converted that into equity, it does not need to categorise that as a bad loan.

Also, the equity shares post conversion are exempt from following the “mark to market” rule. This means if the share price of the company falls below the price at which the debt was converted into equity, the bank does not need to book the difference as a loss during the 18-month period.

SDR essentially gives a bank (actually to the consortium of banks to whom the money is owed by the corporate, and which is referred to as joint lenders’ forum) a period of 18 months to look for a buyer for the company which they have taken over.

The question is will it allow banks to recover the loans that they have given to corporates and which are now in a risky territory? As the Credit Suisse analysts point out: “There has been a significant pick-up in activities under the SDR route over the past few months, with the banks invoking SDR in case of nine accounts with debt of ~Rs57,000 crore (~1% of system loans,). Majority of these accounts have been restructured earlier and have failed to achieve the targets set during the restructuring. Also, with their restructuring moratoriums now ending many would have been on the verge of turning non-performing assets.”

What does this mean? It means banks have tried rescuing the loans they had given to corporates by restructuring them in the past. And they have failed at it. Now these restructured loans are being put through strategic debt restructuring and being converted into equity. If the option of strategic debt restructuring wasn’t available to banks, they would have had to possibly recognise these loans as bad loans.

The Religaire analysts estimate that banks will “end up refinancing 30-40 ailing accounts under the scheme in the next one year, thus postponing non-performing assets [bad loans] recognition of Rs 1.5 lakh crore.”

The other option before banks is to sell these loans to asset restructuring companies for a loss, and then account for that loss over a period of two years. But given that they have the option of postponing any losses through the SDR route, they are more likely to take that route.

What is also interesting is that banks need to keep the companies in which they have converted their debt into equity through the SDR route, running, until they are able to find buyers for them. This means that the lending to these companies can’t completely stop.

Hence, banks will have to provide working capital finance to these companies as well as  fresh loans, so that these companies can continue to pay interest on their remaining debt.

As the Religaire analysts write: “It is important for lenders to keep companies under SDR running until they find new buyers. Banks are thus likely to continue funding interest costs and working capital during the 18-month SDR window. This includes meeting guarantees invoked by state governments or developers for delayed project completion. We assume that debt levels (including interest) will rise ~20% during this period.”

To conclude, as I keep saying things are not looking good for Indian banks.

The column originally appeared on the Vivek Kaul’s Diary on January 7, 2016

Why banks love lending to you and me, but hate lending to corporates

Regular readers of this column would know that I regularly refer to the sectoral deployment of credit data usually released by the Reserve Bank of India(RBI) at the end of every month. This data throws up interesting points which helps in looking beyond the obvious.
On December 31, 2015, the RBI released the latest set of sectoral deployment of credit data. And as usual the data throws up some interesting points.

What the banks refer to as retail lending, the RBI calls personal loans. This categorisation includes loans for buying consumer durables, home loans, loans against fixed deposits, shares, bonds, etc., education loans, vehicle loans, credit card outstanding and what everyone else other than RBI refer to as personal loans.

Banks have been extremely gung ho in giving out retail loans over the last one year. Between November 2014 and November 2015, scheduled commercial banks lent a total of Rs 5,04,213 crore (non-food credit). Of this amount the banks lent, 39.4% or Rs 1,98,727 crore were retail loans. Hence, retail loans formed closed to two-fifths of the total amount of lending carried out by banks in the last one year.

How was the scene between November 2013 and November 2014? Of the total lending of Rs 5,45,280 crore carried out by banks, around 27.7% or Rs 1,50,843 crore was retail lending. Hence, there has been a clear jump in retail lending as a proportion of total lending over the last one year.

In fact, if we look at the breakdown of retail lending (or what RBI refers to as personal loans) more interesting points come out.

Outstanding as on: (In Rs crore)Nov.28, 2014Nov.27, 2015Increase(in Rs crore)Increase in %
Personal Loans1105910130463719872717.97%
Consumer Durables1466016545188512.86%
Housing (Including Priority Sector Housing)59460370523511063218.61%
Advances against Fixed Deposits553396045851199.25%
Advances to Individuals against share, bonds, etc.38616886302578.35%
Credit Card Outstanding2948637646816027.67%
Vehicle Loans1194101378871847715.47%
Other Personal Loans2258302722974646720.58%


The overall increase in retail loans has been around 18% over the last one year. This is significantly better than 8.8% increase in overall lending by banks (non-food credit i.e.). Within retail loans, vehicle loans and consumer durables have grown slower than the overall growth in retail loans. How did things stand between November 2013 and November 2014?

Outstanding as on (in Rs crore)November 29, 2013November 28,2014Increase in Rs croreIncrease in %
Personal Loans955067110591015084315.79%
Consumer Durables998714660467346.79%
Housing (Including Priority Sector Housing)5101715946038443216.55%
Advances against Fixed Deposits5603255339-693-1.24%
Advances to Individuals against share, bonds, etc.28323861102936.33%
Credit Card Outstanding2414729486533922.11%
Vehicle Loans979141194102149621.95%
Other Personal Loans1950282258303080215.79%

The retail loans between November 2013 and November 2014 had grown by 15.8%. In comparison, the growth between November 2014 and November 2015 was at 18%. This increase can be attributed to the 125 basis points repo rate cut carried out by the Reserve Bank of India during the course of this year. One basis point is one hundredth of a percentage. Repo rate is the rate at which RBI lends to banks and acts as a sort of a benchmark to the interest rates that banks pay for their deposits and in turn charge on their loans.

But despite a rapid and massive cut in the repo rate, the jump in retail loan growth hasn’t been dramatic. In fact, loans for the purchase of consumer durables grew by 12.9% between November 2014 and November 2015. They had grown by 46.8% between November 2013 and November 2014, when interest rates were higher. Vehicle loans grew by 15.5% in the last one year. They had grown by 22% between November 2013 and November 2014. This despite a fall in interest rates. Home loans had grown by 16.6% between November 2013 and November 2014. They grew by 18.6% between November 2014 and November 2015. There has been some improvement on this front. Hence, lower interest rates have had some impact on retail borrowing, but not as much as the experts and economists who appear on television and write in the media, make it out to be.

What does this tell us? As L Randall Wray writes in Why Minsky Matters: An Introduction to the Work of a Maverick Economist, quoting economist Hyman Minsky: “According to Minsky, bank lending would…be determined….by the willingness of banks to lend, and of their customers to borrow.”

So why are banks more than happy to lend to give out retail loans? As I had pointed out in yesterday’s column, lending to the retail sector continues to be the best form of lending for banks. The stressed loans ratio (i.e. bad loans plus restructured loans) in this case is only 2%. This means that for every Rs 100 lent by banks to the retail sector only Rs 2 worth of loans is stressed.

The same cannot be said about the loans that banks have been giving to corporates. The lending carried out by banks to industry as well as services in the last one year formed around 43.4% of the overall lending carried out by banks. Between November 2013 and November 2014, the lending carried out by banks to industry as well as services had stood at 50% of overall lending.

What explains this? Lending to large corporates has led to 21% stressed loans. The same is true for medium corporates where stressed loans form 21% of overall loans. And this best explains why banks have been happy to lend to you and me, but not to corporates.

The column originally appeared on Vivek Kaul’s Diary on January 6, 2016

Miracles don’t happen, it’s just chance


I ran into a long-lost friend (yes even in the age of Facebook) at a mall, after a decade, over the Christmas weekend. And he couldn’t believe that we had met after so long. “It is indeed a miracle that we met,” he said. He didn’t stop at that and continued.

“What if, I had walked into the mall an hour earlier? What if I hadn’t walked towards this side of the mall?” “What were the chances of us meeting?” he finally asked. The question was obviously rhetorical and I didn’t answer it.

Nevertheless, running into a long-lost friend or an acquaintance isn’t as a big deal as we normally make it out to be. Let’s understand this through an example. As Michael Brooks writes in the introduction to Chance—The Science and Secrets of Luck, Randomness and Probability: “Take the calculation by author Ali Binazir, who claimed, via a chain of reasoning about your mother and father meeting, eggs getting fertilised, and human longevity, that odds of you existing are 1 in 102,685,000 – a 10 followed by 2,685,000 zeroes.”

What this bit of fancy maths tells us is that our chances of being born are very low indeed. On the face of it, it seems like a miracle. But is that the case? As Brooks writes: “Such odds are, at first glance, impressive. They create a sense of awe. But they are also nonsense. You are the result of all those things actually happening, whatever the odds of two random people falling in love, or a particular sperm fertilising a particular egg. And so is everyone else on the planet…I hate to say it, but you’re not, as Binazir claims, a miracle. You’re just a link in the human chain.”

The point here being is that the odds of me existing are low. But that is also true about every individual on this planet. And given that, does it really matter?

John Allen Paulos explains this in A Numerate Life—A Mathematician Explores the Vagaries of Life, His Own and Probably Yours through a concept called the Fundamental Confusion of Coincidences. As he writes: “The probability of an unusual event or sequence of events is usually very small, in fact minuscule, yet the probability of some event or sequence of events of the same vaguely defined general sort is usually quite high. People regularly confuse the two probabilities.”

In my case, running into a particular friend at the mall was obviously low. But that is true about everyone who steps out of home. So of all the people stepping out at a given point of time, someone is going to run into someone he knows, after a long time. And that is the way to look at it the situation.

In fact, we underestimate the role of chance in our daily lives and tend to attribute something happening to a “miracle” too easily. As Paulos writes: “If an event or sequence of events gives rise to a supposed miracle that is deemed a divine intervention, the one deeming it so must face some obvious questions. Why, for example, do so many people refer to the rescuing of a few children after a destructive tornado as a miracle when they chalk up the death of perhaps dozen equally innocent children in the same disaster to a meteorological anomaly?”

And this is a very important question to ask. As Paulos points out: “It would seem either both are the result of divine intervention or both are a consequence of atmospheric conditions. The same point holds for other tragedies. If a recovery from a disease after a long series of struggles and treatments is considered a miraculous case of divine intervention, then what do we attribute the contracting of the disease in the first place?”

Nevertheless, one rarely gets to see this kind of thinking anywhere. Brooks explains this phenomenon by saying “dealing properly with chance takes real mental effort”. And that is clearly missing in the world that we live in.

The column originally appeared in the Bangalore Mirror on January 6, 2016

When it comes to bad loans of banking, the big boys are the bad boys

The Reserve Bank of India(RBI) released the Financial Stability Report on December 23, 2015. One of the key themes in this report was the fact that large borrowers are the ones who have landed the banking sector in trouble. As the RBI governor Raghuram Rajan wrote in the foreword to the report: “corporate sector vulnerabilities and the impact of their weak balance sheets on the financial system need closer monitoring.”

That is a euphemistic way of saying that corporates are essentially responsible for the rising bad loans of banks. As on September 30, 2015, the bad loans (gross non-performing advances) of banks were at 5.1% of total advances [i.e. loans] of scheduled commercial banks operating in India. The number was at 4.6% as on March 31, 2015. This is a huge jump of 50 basis points in a period of just six months. One basis point is one hundredth of a percentage.

What is the problem here? The inability of large borrowers to continue repaying the loans they have taken on in the years gone by. As on September 30, 2015, loans to large borrowers made up 64.5% of total loans. On the other hand, bad loans held by large borrowers amounted to 87.4% of total bad loans.

What this means is that for every Rs 100 of loans given by banks, Rs 64.5 has been given to large borrowers. At the same time of every Rs 100 of bad loans, large borrowers are responsible for Rs 87.4 of bad loans. Hence, large borrowers are clearly responsible for more bad loans.

As on March 31, 2015, bank loans to large borrowers made up 65.4% of total bank loans. At the same time, the bad loans of large borrowers constituted 78.2% of the total bad loans. What this means is that for every Rs 100 of loans given by banks, Rs 65.4 was given to large borrowers. At the same time of every Rs 100 of bad loans, large borrowers were responsible for Rs 78.2 of bad loans. This has since jumped to Rs 87.4 for every Rs 100 of bad loans.

What these numbers clearly tell us is that in a period of six months the situation has deteriorated big time and large borrowers have been responsible for it. As the RBI Financial Stability Report points out: “While adverse economic conditions and other factors related to certain specific sectors played a key role in asset quality deterioration, one of the possible inferences from the observations in this context could be that banks extended disproportionately high levels of credit to corporate entities / promoters who had much less ‘skin in the game’ during the boom period.”

What does this mean? Banks gave loans to corporates/promoters who had put very little of their own money in the project they had borrowed money for. Banks essentially gave more loans than they actually should have, given the amount of capital the promoters put in. And this is now proving to be costly for them.

In fact, lending to industry forms a major part of the stressed loans of banks. Stressed loans are essentially obtained by adding the bad loans and the restructured loans of banks.  A restructured loan is a loan on which the interest rate charged by the bank to the borrower has been lowered. Or the borrower has been given more time to repay the loan i.e. the tenure of the loan has been increased. In both cases the bank has to bear a loss.

As the RBI report points out: “Sectoral data as of June 2015 indicates that among the broad sectors, industry continued to record the highest stressed advances ratio of about 19.5 percent, followed by services at 7 per cent. The retail sector recorded the lowest stressed advances ratio at 2 per cent. In terms of size, medium and large industries each had stressed advances ratio at 21 per cent, whereas, in the case of micro industries, the ratio stood at over 8 per cent.”

Lending to the retail sector (i.e. you and me) continues to be the best form of lending for banks. The stressed loans ratio in this case is only 2%. This means that for every Rs 100 lent by banks to the retail sector (home loans, car loans, personal loans and so on), only Rs 2 is stressed.

Why is this the case? For the simple reason that it is very easy for banks to go after retail borrowers who are no longer in a position to repay the loans they have taken on. Further, there is no political meddling when it comes to loans to retail borrowers, hence, the lending is anyway of good quality.

In comparison, lending to industry has a stressed loans ratio of 19.5%. This means for every Rs 100 that the banks have lent to industry, Rs 19.5 is stressed i.e. it has either been defaulted on or has been restructured. Interestingly, even within industry, the situation with the micro industries is not as bad as the medium and the large industries.

The large industries have a stressed loans ratio of 21% i.e. for every Rs 100 lent to large industries by banks, Rs 21 has either been defaulted on or has been restructured. In case of micro industries, the number is at 8%. This is because banks can unleash their lawyers on the small industries in case the loan is in trouble. They can’t do the same on large borrowers. And even if they do it does not have the same impact.

Five sectors have been responsible for a major part of the trouble. These are mining, iron & steel, textiles, infrastructure and aviation. These “together constituted 24.2 per cent of the total advances [i.e. loans] scheduled commercial banks as of June 2015, contributed to 53.0 per cent of the total stressed advances.” “Stressed advances in the aviation sector6 increased to 61.0 per cent in June 2015 from 58.9 per cent in March, while stressed advances of the infrastructure sector increased to 24.0 per cent from 22.9 per cent during the same period.”

To conclude, when it comes to the bad loans of banking, the big boys are the bad boys who are responsible for a majority of the mess.

The column originally appeared on The Daily Reckoning on January 5, 2016