Sunday, April 17, 2016

Indian banking prospects

I have a detailed paper in EPW on The changing face of Indian banking

My conclusions:

India’s banking sector is going through a period of stress. It is as if the global financial crisis is impacting the Indian economy and Indian banking with a lag. It would be unwise to draw conclusions or prescriptions about Indian banking by looking at performance indicators over the past three years of stress. One has to consider the post-reform period as a whole and, in particular, the decade of 2003-12. Over a long period, there has been a secular improvement in efficiency and stability. It is important to understand that public ownership has been an important factor underlying this trend.
While competition is set to increase in the coming years, it is unlikely to impact full-scope commercial banks in a significant way, except for PSBs that have lagged behind badly in technology and performance. There is scope for improvement in the performance of PSBs within the framework of public ownership. We need to strengthen management and governance at PSBs while recognising the uniqueness of the PSB model. The answer does not lie in getting PSBs to conform to practices of private banks.
It is important to find ways to deal with stressed assets in the system. This entails creation of an independent authority to vet restructuring agreements between PSBs management and promoters, infusion of greater capital into PSBs than is currently envisaged and resolution of various issues in the economy at large.


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