India less vulnerable to banking distress risks than China: Report

Basel/New Delhi: India is better placed than neighbouring China and Brazil in terms of banking distress risks, says a report prepared by the Bank for International Settlements (BIS), which also flagged that high corporate debt levels have caused overheating in some emerging economies.

The observations are part of the report submitted to the G20 International Financial Architecture Working Group and it comes at a time when there are concerns about the rise of bad loans in the banking system in India, which is also a key member of the G20 grouping.

Based on certain indicators, BIS noted that they suggest "heightened risk of banking distress in a number of emerging market economies".

"This is in particular the case for Brazil, China and Turkey where the credit-to-GDP gaps are close to or above 10 per cent. In the past, two-thirds of banking crises were preceded by credit-to-GDP gaps breaching this thresholds during the three years before the event," it said.

Further, the report observed that debt-to-service ratio based indicators paint a similar picture.

India's credit-to-GDP gap has been estimated at (-3.2) whereas that of China was 29.7 and Brazil 8.5. Among other economies, the figure for Turkey was 11.8, Korea (3.9) and Mexico (7.7).

Debt service ratio of India was 1.8 compared to 5.5 for China and 7.4 for Brazil, as per the report.