K N Raj Memorial Lecture

Indian Commercial Banking at Crossroads

Professor Partha Ray, Director, National Institute of Bank Management, Pune

Partha Ray is currently Director, National Institute of Bank Management, Pune. He was a Professor of Economics at the Indian Institute of Management Calcutta, Kolkata, India during December 2011 – April 2021. During 2007 – 2011 he was Adviser to the Executive Director (India) at the International Monetary Fund, Washington D.C. Earlier (during 1989 – 2006) he worked in the specialist cadre of Economists at the Reserve Bank of India (RBI); his last position was Director, Department of Economic and Policy Research, RBI. Educated in Kolkata, Mumbai and Oxford, he has written extensively on various global economic and financial sector issues. His recent publications include: The Political Economy of BRICS Countries: The Quest for Inclusive Growth (jointly edited with Biju Paul Abraham; World Scientific, 2020); Macroeconomic Policies for Emerging and Developing Economies (with A Vasudevan; Sage Publications, 2018); Financial and Fiscal Policies: Crises and New Reality (with Y V Reddy and Narayan Valluri; Oxford University Press, 2015).

ABSTRACT

The Indian story of commercial banking has been quite distinct, and it underwent a number of major twists and turns. In terms of a broad brush, while banking in India till 1969 was largely a private sector business, since the nationalization of several major banks, the share of public sector banks became dominant, and societal concerns tended to govern their objectives. In fact, till the late 1980s, issues like bank profitability or the extent of bad debt in the banking system were hardly discussed in policy circles. With the financial sector reforms being an integral part of the Indian economic reforms process, the importance of private banks has started increasing since the mid-1990s. However, the balance continued to be tilted in favour of the public sector banks. More recently, since 2015, Indian banking has been bitten by the bug of non-performing assets (NPAs), a euphemism for bad loans. Several measures were initiated to lessen this problem, and those measures have started to bear fruit. Against this backdrop, there are current indications that more privatization of Indian banking is in the offing. Naturally, apprehension of such a turn in Indian banking gives birth to serious public policy questions. Is the nature of Indian banking going to change drastically? How do we address societal concerns as and when the bulk of the banks are owned by private players? How do we handle the possibility of a bank run in the new scenario? While attempting a sweeping narrative of the evolutionary journey of Indian banking, this lecture seeks to address some such questions.