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Indian Banking: Paving The Way To Future Through Undeterred Economic Growth

Once the banks are equipped with intelligent decision-makers and strict laws are introduced against loan defaulters, the chances of quick upliftment can’t be ruled out.

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India’s banking sector has had a long journey, there has been a transition from traditional banking practices to increase in competition with rising number of private sector banks and foreign banks currently present with profitability as top priority. Over the years the backbone of our economy (the banking sector) have endured the global slump reasonably well. The credit, market and liquidity risk studies imply that the Indian banks are buoyant and even though the economy is going through a downfall their resilience show greater hope of revival. With a revised growth approach and by reconsidering the available prospects, the Indian banking sector is trying hard to keep the economy rolling reflecting the strong foundation of banking principles present in our country.

The advent of Digital Banking and reformation of the banking sector

Indian banks, the subset of the financial services industry has seen constant evolution. With the advent of the digital revolution and introduction to mobile and internet banking, this sector has upgraded well and enhanced operational efficiency. As a matter of fact, modern banking development relies on digitization to meet the ever-expanding customer expectations, regulatory requirements, technology demographics, new competitors as well as to quickly pull through the shrinking economy.

The banking sector today faces many challenges in diverse areas such as despite having strict laws there are frequent cases of loan defaulters easily escaping. The problem with NPAs also continues to bring in disruption leaving banks in distress a lingering reason to shake the faith people have on them.

Nationalized Banks for Boosting Economic Growth

Post-independence nationalizing the banks was the biggest structural reform that helped India propel towards becoming one of the largest developing economies. The efficiency of the banking system in the country improved and it earned the trust of the public. The small-scale industries and agriculture sector made significant strides as these banks were able to diffuse even through the rural and remote areas of India lowering the regional imbalance. 

The core objective of the Nationalized banks was to stimulate the priority sectors under the circumstances of big businesses dominating the credit section and assisting other primary lending agencies through ceasing private monopoly.

With bank nationalization, soon the export sector, agriculture and small-scale industries started flourishing and the socio-economic objectives were met contributing majorly to the growth of Indian economy. Also, with the establishment of NABARD, NHB, SIDBI, EXIM and RRBs the individual requirements of the unreserved rural population, foreign trade and housing were fulfilled, thus, boosting new growth and creating umpteen job opportunities.    

The reasons for the downfall

Currently, there is an unprecedented threat to the banking system in India. Most of the present developments imply a looming banking paralysis compromising with the ongoing economic recovery. 

Problems like heightened political interference, governance inefficiency, challenges incurred by the NPAs and lack of expertise in fruitful credit evaluation are a few evils weakening this fundamental pillar.

To efficiently address the lapses, restructuring of resolution framework for compelling governance, speedy recognition of Non-Performing Assets, deploying capable measures to judge project quality for taking the right call, digital efficiency above all accountability in terms of regulatory push by the government and RBI are needed to eradicate the impending delay to the country’s economy. Besides, more attention needs to be given to keep the ugly political agendas away that can hamper any robust and functional credit mechanism.   

Anticipating a sooner revival

To deal with the banking crisis corrective-courses need to be set, however, the government must steer clear of any harsh approach that can further derail the economy from its track. In the budget of 2019, our Finance Minister brought up a proposal of infusion of 70,000 crores as a solution to the liquidity crisis of public sector lenders. Besides, the government also merged several non-performing PSBs with the better-performing ones, but economists suggest that the government must focus on NBFC lending more than on such mergers to witness fruitful results.

Such steps by our government emphasize on their actions to manage the bad loans and bringing the PSB’s out of distress. But, it’s only a short-term respite. To ensure the banks don’t descend into the downward spiral the bank’s health must be evaluated from time to time. 

Hiring proficient managers who can identify dubious credit transactions under political or bureaucratic pressure is the need of the hour. Once the banks are equipped with intelligent decision-makers and strict laws are introduced against loan defaulters, the chances of quick upliftment can’t be ruled out.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Rakesh Tulsiani

Rakesh Tulsiani is the COO at Digitalabs. He has worked across industries, including Banking, Automobile, E-commerce, Government, Hospitality, Retail, Telecommunication, Health Care, Electronics, Insurance, Media, FMCG, and Education.

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