IF YOU owe a bank a hundred dollars, it is your problem. If you owe a hundred million, it is the bank's problem. If you are one of many tycoons borrowing billions to finance dud firms, it is the government's problem. That is roughly the situation India finds itself in today. Its state-owned banks extended credit to companies that are now unable to repay. Like the firms they have injudiciously lent to, many banks are barely solvent. Almost 17% of all loans are estimated to be non-performing; state-controlled banks are trading at a steep discount to book value. After years of denial, India's government seems belatedly to have grasped the threat to the wider economy. Plans are being floated to create a "bad bank" that would house banks' dud loans, leaving the original lenders in better shape. The idea is a good one, but it must be properly implemented and is only the starting-point for broader reforms.
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