Handling the banking crisis

13 SEP,2021 | MEDC


 

The growth crisis facing the Indian economy is essentially a banking crisis. Banks were constrained in their lending by their high levels of NPAs, while companies were constrained in their investment by their high levels of debt. In all fairness, the NPA issue was not the result only of poor lending decisions by public sector banks. Many factors external to the sector contributed to it, including the global financial crisis, adverse legal judgements, dumping by China etc. India’s banking crisis arose from an unfortunate combination of bad judgement and ill luck. On the flip side, compared to a decade ago, our banking sector’s fundamentals are stronger today. Gross NPAs have reduced from 8.4% of loans in March 2020 to 7.5% a year later. With some deft regulatory provisions, there is reason to believe that we will soon overcome this crisis.

*Photo Credit: Google

 

 

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