A Rally in Indian Bank Debt Under Threat as Defaults Seen Rising

A rally in the debt of Indian banks is running up against concern they’ll need to take on greater risks as world’s worst bad debt pile is set to weaken further, Bloomberg News reported. While average premiums on rupee-denominated Additional Tier 1 bonds of the five biggest Indian banks have fallen to about 200 basis points from the end of April, they are still up some 117 basis points this year. And some investors say the rally has little room to continue amid concerns India companies are getting downgraded like never before. Prime Minister Narendra Modi’s $277 billion stimulus package is heavily reliant on more lending from state banks as he seeks to revive a sagging economy. Indian banks need to build up risk buffers to cushion against an impending jump in corporate defaults tied to the pandemic, as McKinsey & Co. forecasts an increase in the country’s bad debt ratio, which is already at 9.3%. Read more