Issues for India in Financial Sector

Abstract :-
India’s financial sector is facing considerable challenges with high NPAs and slow
deleveraging & repair of corporate balance sheets testing the resilience of the
banking system and holding back investment & growth. A group of public sector
banks are highly vulnerable to further declines in asset quality and higher
provisioning needs. India’s financial system is undergoing a gradual structural
shift, with a greater role for non-bank intermediaries and higher market funding
for large corporates. Thus, Indian financial system is becoming less bank
dominated as a whole lot of credit is now from non-bank sources. Public sector
banks have also been hit by the increasing cases of unpaid debt by the corporates.
A lot of loans have gone bad, while in others, the banks are facing some kind of
trouble.
However, there are solutions for these problems which include strengthening the
RBI's de jure independence as well as its powers over the PSBs ; expanding other
financial regulators' resources ; and, in the area of crisis management, a planned
introduction of a risk based solvency regime. Thus, the ‘Financial Resolution &
Deposit Insurance Bill’ is a step in right direction as it gives authorities a range of
powers to deal with bank failures. The 2016 Insolvency & Bankruptcy code
introduced a modern framework that aims at reorganization and insolvency
resolution, and has empowered the RBI with directing restructuring cases to
insolvency process. Apart from this, the weakness of the PSBs has to be overcome
by the government. The government like any shareholder of banks, has to
recapitalize the banks so that they can overcome their weakness. Thus, this
approach promises to deliver progress in NPA resolution ; sufficient provisioning
& capital buffers in the PSBs ; broader restructuring of the PSB sector including
improvements in governance ; more flexible debt restructuring mechanisms and
increased capacity and resources for insolvency courts.
Shivaditya
B.A. Economics (Part III)
Email ID :- vermanshivaditya.37@gmail.com