The bad loan cycle is turning

The RBI’s confirmation this week that the NPL ratio has dropped over the past year suggests that the government’s efforts to tidy up the banking sector are gradually having an impact. We are optimistic that the NPL ratio will drop further over the coming years. However, the government’s work is not done yet. In particular, it is important for the economy’s long-run health that the practices that led to the build-up of bad debt in the first place are not allowed to reappear.