Scribd
Upload
42 views3 pages

Banking Crisis in India

The banking crisis in India stems from high levels of non-performing assets (NPAs), weak corporate governance, and inadequate risk management. NPAs have reached an all-time high of 10.36% in 2018 compared to 2.3% in 2008, exacerbated by poor credit appraisal, collateral coverage, and recovery systems. Weak corporate governance as evidenced by fraud and corruption has also eroded public trust. Inadequate management of credit, market, and operational risks has led to significant losses. Solutions include strengthening credit assessment, improving governance, and enhancing risk management practices.

Uploaded by

KIPKOSKEI MARK
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
42 views3 pages

Banking Crisis in India

The banking crisis in India stems from high levels of non-performing assets (NPAs), weak corporate governance, and inadequate risk management. NPAs have reached an all-time high of 10.36% in 2018 compared to 2.3% in 2008, exacerbated by poor credit appraisal, collateral coverage, and recovery systems. Weak corporate governance as evidenced by fraud and corruption has also eroded public trust. Inadequate management of credit, market, and operational risks has led to significant losses. Solutions include strengthening credit assessment, improving governance, and enhancing risk management practices.

Uploaded by

KIPKOSKEI MARK
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Banking Crisis in India

introduction

The banking sector in India has been facing numerous challenges, leading to a crisis in

recent years. The banking crisis in India is characterized by a high level of non-performing assets

(NPAs), weak corporate governance, and inadequate risk management. These issues have had a

detrimental impact on the stability of the banking sector, leading to a decline in the confidence of

investors and the public. This essay discusses the factors contributing to the banking crisis in

India and highlights possible solutions to address the situation.

One of the main factors contributing to the banking crisis in India is the high level of

NPAs. The gross NPAs of the Indian banking sector reached an all-time high of 10.36% in 2018,

compared to 2.3% in 2008 (Das, 2019). The problem of NPAs has been exacerbated by weak

credit appraisal and monitoring systems, inadequate collateral coverage, and poor recovery

mechanisms (Jain, 2019). The poor asset quality has impacted the profitability and capital

adequacy of banks, making them vulnerable to further shocks.

Another factor contributing to the banking crisis in India is weak corporate governance.

The banking sector in India has been plagued by instances of fraud, corruption, and misconduct,

which have eroded the trust of investors and the public in the sector (RBI, 2020). The absence of

effective governance mechanisms and a lack of accountability have contributed to the

deterioration of the financial health of banks.


Inadequate risk management is also a significant factor contributing to the banking crisis

in India. The banking sector is exposed to various risks, including credit risk, market risk, and

operational risk. The inadequate management of these risks has led to significant losses for

banks, impacting their capital adequacy and profitability (Rao, 2018). Additionally, the lack of

effective risk management has led to weak credit appraisal and monitoring systems, exacerbating

the problem of NPAs.

To address the banking crisis in India, several measures can be taken. One solution is to

strengthen the credit appraisal and monitoring systems of banks. This can be achieved through

the implementation of advanced technology and risk assessment models, improving the quality

of credit appraisal, and establishing effective recovery mechanisms (Das, 2019). Additionally,

measures to improve collateral coverage and increase transparency in lending can help reduce

the problem of NPAs.

Another solution is to improve corporate governance mechanisms in the banking sector.

This can be achieved through the establishment of independent audit committees, the separation

of the roles of chairman and CEO, and the implementation of ethical and accountability

standards (RBI, 2020). Additionally, measures to enhance transparency and disclosure can help

restore investor and public confidence in the sector.

Conclusion

The banking crisis in India is a complex issue that requires a multi-pronged approach to

address. The high level of NPAs, weak corporate governance, and inadequate risk management

have contributed to the crisis. However, through the implementation of effective measures such
as strengthening credit appraisal and monitoring systems, improving corporate governance

mechanisms, and enhancing risk management practices, the banking sector in India can be

restored to stability and regain the trust of investors and the public.

References

Das, S. (2019). India's banking sector crisis: Causes, consequences and remedies. Journal of

Economics and Political Economy, 6(2), 155-174.

Jain, A. K. (2019). Non-performing assets in Indian banking sector: A review. International

Journal of Engineering Research and Technology, 12(8), 60-65.

Rao, P. (2018). Risk management practices in Indian banks: A comparative study. Journal of

Commerce and Accounting Research, 7(3), 44-51.

Reserve Bank of India (2020). Report on trend and progress of banking in India. Retrieved from

You might also like