Risks Loom for Indian State Banks Binging on Sovereign Bonds

With credit growth at multi-year lows, Indian lenders have been binging on sovereign debt. With the government set to borrow more, the move is fraught with risk.

Bond holdings as a proportion of aggregate deposits stood at about 29% in the two weeks ended Dec. 20, way higher than the 18.25% mandated by the central bank, according to calculations based on data from the Reserve Bank of India. That leaves banks exposed to losses if yields climb on higher federal borrowings.