How bad loans ruined India’s banking system

Subscribe to enjoy similar stories. Financial crises come in all shapes and sizes—and occasionally as part of rescue packages. The International Monetary Fund’s austerity package after the 1997 Asian foreign exchange crisis sent many South-East Asian nations reeling, giving rise to multiple unintended consequences.

Likewise, India’s reaction to the 2008 financial crisis seeded a domestic banking crisis which, among other things, spelt political disaster for a two-term government. The 2008 crisis required the Indian government to launch a stimulus programme which involved pumping in large amounts of cash to various segments of society. When the resulting liquidity bulge and demand spike bumped up against supply-side gaps (such as manufacturing capacity falling short of the demand spike) and infrastructure deficits (limited railway freight-carrying capacity, shortage of cold storage and lack of all-weather roads), it caused an inflationary spiral.

This motivated the government to prioritise investment in infrastructure and induce the private sector to expand its manufacturing capacity. The Dirty Dozen: India’s Twelve Biggest Corporate Defaulters (Pan Macmillan) by N. Sundaresha Subramanian explores the aftermath of this policy shift, which resulted in India Inc.

displaying an avaricious appetite for bank loans, the subsequent piling up of unpaid dues, the political repercussions, and the system’s attempts to sort out the crisis. The book trains its lens on the 12 largest unpaid loans, which were grouped under the moniker “The Dirty Dozen", inspired by the 1967 multi-starrer in which 12 convicts are chosen and trained for a World War II suicide mission. It has acquired an immediacy after the Alipore district court in