The financial performance of India's corporate sector has been under pressure since the Global Financial Crisis. Balance-sheet data on a large cross-section of Indian non-financial corporates show that the growth in their leverage over the last 15 years has been associated with a notable increase in the vulnerabilities of firms carrying high interest payment burdens. Gauged by the debt carried by the most vulnerable component of firms, the Indian corporate sector’s vulnerability to severe systemic shocks has increased to levels not seen since 2001. Progress on the macroeconomic front, together with improved credit appraisals and stricter impairment standards on the bank side, will be critical to help India's banks resume their role as economic growth drivers.

The financial performance of India's corporate sector has been under pressure since the Global Financial Crisis. Balance-sheet data on a large cross-section of Indian non-financial corporates show that the growth in their leverage over the last 15 years has been associated with a notable increase in the vulnerabilities of firms carrying high interest payment burdens. Gauged by the debt carried by the most vulnerable component of firms, the Indian corporate sector’s vulnerability to severe systemic shocks has increased to levels not seen since 2001. Progress on the macroeconomic front, together with improved credit appraisals and stricter impairment standards on the bank side, will be critical to help India's banks resume their role as economic growth drivers.

We explore empirically how the time-varying allocation of credit across firms with heterogeneous credit quality matters for financial stability outcomes. Using firm-level data for 55 countries over 1991-2016, we show that the riskiness of credit allocation, captured by Greenwood and Hanson (2013)’s ISS indicator, helps predict downside risks to GDP growth and systemic banking crises, two to three years ahead. Our analysis indicates that the riskiness of credit allocation is both a measure of corporate vulnerability and of investor sentiment. Economic forecasters wrongly predict a positive association between the riskiness of credit allocation and future growth, suggesting a flawed expectations process.

High and persistent levels of nonperforming loans (NPLs) have featured prominently in recent financial crises. This book traces NPL trends during and after crises, examines the economic impact of high NPLs, and compares the effectiveness of NPL resolution strategies across economies in Asia and Europe. The book distills important lessons from the experiences of economies using case studies and empirical investigation of ways to resolve NPLs. These findings can be invaluable in charting a course through the financial and economic fallout of the coronavirus disease (COVID-19) pandemic to recovery and sustained financial stability in Asia, Europe, and beyond.

Corporate credit growth in China has been excessive in recent years. This credit boom is related to the large increase in investment after the Global Financial Crisis. Investment efficiency has fallen and the financial performance of corporates has deteriorated steadily, affecting asset quality in financial institutions. The corporate debt problem should be addressed urgently with a comprehensive strategy. Key elements should include identifying companies in financial difficulties, proactively recognizing losses in the financial system, burden sharing, corporate restructuring and governance reform, hardening budget constraints, and facilitating market entry. A proactive strategy would trade off short-term economic pain for larger longer-term gain.

The October 2019 Global Financial Stability Report (GFSR) identifies the current key vulnerabilities in the global financial system as the rise in corporate debt burdens, increasing holdings of riskier and more illiquid assets by institutional investors, and growing reliance on external borrowing by emerging and frontier market economies. The report proposes that policymakers mitigate these risks through stricter supervisory and macroprudential oversight of firms, strengthened oversight and disclosure for institutional investors, and the implementation of prudent sovereign debt management practices and frameworks for emerging and frontier market economies.

The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

This Financial System Stability Assessment paper discusses that Canada has enjoyed favorable macroeconomic outcomes over the past decades, and its vibrant financial system continues to grow robustly. However, macrofinancial vulnerabilities—notably, elevated household debt and housing market imbalances—remain substantial, posing financial stability concerns. Various parts of the financial system are directly exposed to the housing market and/or linked through housing finance. The financial system would be able to manage severe macrofinancial shocks. Major deposit-taking institutions would remain resilient, but mortgage insurers would need additional capital in a severe adverse scenario. Housing finance is broadly resilient, notwithstanding some weaknesses in the small non-prime mortgage lending segment. Although banks’ overall capital buffers are adequate, additional required capital for mortgage exposures, along with measures to increase risk-based differentiation in mortgage pricing, would be desirable. This would help ensure adequate through-the cycle buffers, improve mortgage risk-pricing, and limit procyclical effects induced by housing market corrections.

This paper explores key issues affecting the Indian economy and implications for fiscal, monetary, financial sector, and other structural policies. This paper evaluates the build-up of corporate and banking sector vulnerabilities in India, linked to the past macroeconomic slowdown and supply-side bottlenecks, particularly in the infrastructure sector; the nature, scope, and the effectiveness of macroprudential policies in India; the potential costs and benefits of gold monetization schemes in India; two recent episodes of financial market volatility—the taper tantrum of the summer of 2013 and the China spillover episode of the summer of 2015; effectiveness of India’s capital controls using an arbitrage based approach; the relationship between Indian; and international market prices of cereals.

Global Financial Governance Confronts the Rising Powers addresses the challenge that the rising powers pose for global governance, substantively and institutionally, in the domain of financial and macroeconomic cooperation. It examines the issues that are before the G20 that are of particular concern to these newly influential countries and how international financial institutions and financial standard-setting bodies have responded. With authors who are mainly from the large emerging market countries, the book presents rising power perspectives on financial policies and governance that should be of keen interest to advanced countries, established and evolving institutions, and the G20.