Friday, July 13, 2007

Banking sector reforms in India

I had a chance to lay out my current views on banking sector reform in the Economic and Political Weekly.

Many people think that banking sector reforms have been too slow or too conservative because public sector banks are still around and dominate the banking system. I question this. I see an improving trend in competition and efficiency in the system. I believe that public ownership has provided the system with a measure of stability within which efficiencies could be pursued. I also think that financial deepening has happened in recent years in a way in which people did not think possible a few years ago.

I am aware that public sector banks need to improve a great deal now in some areas, especially HRD. But the improvement they have shown over the past decade or so is real and substantial and it is very much part of the India Shining story. They remain relevant in the coming years because increasing credit availability to the rural sector is going to be an area of concern for some time.

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