The Indian Banking Sector, 2017: Public Policy Challenges
(8 pages of text)
Case (Pub Mat)
The Indian banking sector had undergone significant changes since 1991 when it was transformed from a highly regulated, predominantly state-owned industry to a more competitive industry with a sizeable presence of private sector banks. However, by 2017, despite reforms implemented by the government, the sector was facing many challenges. The most worrisome problem was an increasing number of non-performing assets (NPAs), particularly among the state-owned banks. Although the Indian economy was one of the fastest growing among larger countries with a stable government, its future growth was compromised by the immediate challenges in the banking sector. What had caused NPAs in the Indian banking sector and how could the problem be addressed?
This case can be used in both undergraduate- and graduate- level courses on banking, economics, and public policy. Students are expected to have some familiarity with the basics of banking and macroeconomics. By working through the case and assignment questions, students will have the opportunity to do the following:
- Understand why banks exist and the issues that arise in banking out of information asymmetry and the principal–agent problem.
- Understand the links between macroeconomic factors, bank ownership, and the health of the banking sector.
- Appreciate the causes and consequences of the bad loans problem in the banking sector.
- Discuss the options for addressing the bad loans problems in the banking sector.
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