Can a land bank be the solution to India's huge shadow bank crisis?

India's banks are rapidly losing faith in the shadow financiers that lend to property builders

When a well-capitalized shadow bank’s credit rating goes from A+ to D in 10 days, it shows how fragile lending to India’s builders has become. It also highlights the policy error of not addressing the root of the problem: land.

In June, three months before the unexpected default by Altico Capital India Ltd., I proposed a land bank that would buy stalled property projects from struggling developers. The bank would pay with government-backed debt securities, which the builders would use to repay loans.

To see how this could prevent liquidity problems from cascading into solvency issues, consider the Altico default.