View: India must privatize all public sector banks other than State Bank of India
The steps taken so far are not enough, in the longer run full modernisation of the banking sector will require further structural reforms, Panagariya says.
The banking sector, a major engine of growth, has been greatly underperforming in India. This is an inherited problem for the present government. Experts in finance had known for some years that the vast majority of the “restructured” loans would eventually turn into non-performing assets (NPAs). But the finance ministry and Reserve Bank of India (RBI) were slow to move towards a solution.
Luckily, both of them have moved to take the NPA bull by the horns during the last year. Armed with the Banking Regulation (Amendment) Act, 2017 and subsequent authorisation by the government, RBI has issued definitive directions to banks for time-bound resolution of stressed assets including through the Insolvency and Bankruptcy Code (IBC), 2016. An impressive 40% of NPAs are now under the IBC process.