What really broke India's banks in 2010s

Akshara· Host0:00

[upbeat music] In today's episode, we'll break down two important stories. First, we'll talk about what really broke India's banks in the 2010s, and then we'll talk about India's economy potentially having a productivity problem. Welcome back to The Daily Brief by Zerodha, where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara, and today is Wednesday, 22nd April. Coming to the first story. So between FY11 and FY18, gross non-performing assets, loans that borrowers had stopped repaying at India's public sector banks or PSBs, went from 2.4% to 14.6% of total advances. At private banks, they barely moved over the same period from 2.5% to 4.7%. The standard, albeit a lazy understanding of this gap, has been that PSBs were worse at lending. Worse governance, weaker underwriting, and softer monitoring caused this, and the numbers just confirm what everyone already suspected. So a recent CSEP working paper by Rakesh Mohan and Divya Srinivasan pushes back on that reading. Their argument is that the crisis wasn't primarily about bad lending. It was the predictable outcome of a policy architecture that made PSBs the only available channel for financing India's infrastructure build-out and then pushed enormous volumes of credit through that channel into sectors that were structurally fragile. When those sectors