India less prone to banking crises; risks higher for China

In the first quarter of 2016, India's credit-to-GDP gap stood at -2.9, the lowest among the BRIC group of nations

India is less vulnerable to banking distress among the major economies while neighbouring China faces higher risks, according to the Bank for International Settlements (BIS).

Data compiled by BIS of more than 40 economies show that credit-to-GDP gap was among the least for India in the first quarter of this year.

The metric, seen as a reliable early warning indicator of impending financial crises, captures the build-up of excessive credit in the system.

In the first quarter of 2016, India's credit-to-GDP gap stood at -2.9, also the lowest among the BRIC group of nations, as per BIS data. The same stood at -3.0 in the three months ended December 2015.

Indicating increased risks in the country's banking system, China saw credit-to-GDP gap jump to 30.1 in the January-March 2016 period from 28.4 seen in the preceding quarter.

The metric for Brazil and Russia stood at 4.6 and 3.7, respectively, in the March 2016 quarter.

Among other major economies, the credit-to-GDP gap of United States was -9.9, United Kingdom (-27.0), Germany (-6.1), France (-0.6) and Switzerland (7.2) in the first quarter of this year.

Credit-to-GDP gap is defined as the difference between the credit-to-GDP ratio and its long-run trend, and captures the build up of excessive credit in a reduced-form fashion, BIS said.

Further, it noted that credit-to-GDP gap has a prominent role in helping supervisors determine whether to activate or increase the required buffer and in supporting the communication of the related decisions.

BIS is the world's oldest international financial organisation, and has 60 member central banks, including RBI, representing countries that together make up for about 95 per cent of the world GDP, as per its website.

Illustration: Brice Hall/Reuters