Pick-up in India's loan growth may not be sustainable

Mumbai

A REBOUND in loan growth to a 20-month high sounds like good news for Indian banks as they struggle to shake off the impact of a surge in bad debts. But a deeper dive into the reasons behind the revival shows that it may be unsustainable.

Lenders seem to be benefiting mostly because a jump in short-term commercial paper rates is driving companies into their arms, according to Prabhudas Lilladher Ltd. A weakening Indian rupee is also making domestic borrowing more attractive, with local companies raising US$2.5 billion via foreign-currency loans in 2016 in the slowest start to a year since 2012.