Sometimes, it takes crisis to do what is necessary and the current turmoil in India offers such an opportunity. Former Reserve Bank of India Governor Raghuram Rajan, former Deputy Governor Viral Acharya, co-authored the paper on how to put tremendous pressure on India’s financial resources, urgently needed to hang on to our banking system reforms. Without these, it would act as a drag on the growth rather than the engine.
In fact, as Rajan and Acharya have seen, there is scope for vast development in many areas, from the performance of public sector banks and the approach to managing dud loans to the uniformity of the risk-management systems they use and their structures. They offer a set of advice that can serve as touch points in determining the broader direction of our banking policy. Financial intermediation in India has long been opposed to efficiency without achieving their objectives as per state directives. With the serious crisis exposing the weaknesses of this state-dominated sector, it is time for corrective action. Without good banks, resource allocation in the country will continue to be a subtitle.