Banking in India - Reforms and Reorganization

Abstract

The banking industry in India is undergoing a transformation since the beginning of liberalization. Interest rates have declined considerably but there is evidence of under-lending by the banks. The "social" objectives of banking measured in terms of rural credit are, expectedly, taking a back seat. The performance of the banks has improved slightly over time with the public sector banks doing the worst among all banks. The banking sector as a whole and particularly the public sector banks still suffer from considerable NPAs, but the situation has improved over time. New legal developments like the SARFAESI Act provide new options to banks in their struggle against NPAs. The adoption of Basel-II norms however imply new challenges for Indian banks as well as regulators. Over time, the Indian banking industry has become more competitive and less concentrated. The new private sector banks have been the most efficient though the recent collapse of Global Trust bank has raised issues about efficiency and regulatory effectiveness.

Keywords: India, banking, reorganization

JEL Classification: G21, N25