CHALLENGE OF NPAS IN THE INDIAN BANKING SECTOR

India has a long history of venerated banking system of over 200 years, in which banks have been playing a pivotal role in making financial sector strong and viable through sustainable pace of economic growth. Banking System in India is diverse and encompasses commercial banks, regional rural banks, urban cooperative banks, and primary agricultural credit societies. After independence, several changes have taken place in the banking sector right from government monitored policies to the breezing liberalized world of post 1991 period.

- Sanjay M. Nafde

But fact is that despite all these changes, role of banking in Indian Banking System remains unchanged. Apart from consistent changes in the financial sector, there have been two major catastrophes that banking system has faced; first one took place during 1997-2002 and the second one started after the Global financial crisis in 2008.

The Indian Banking sector encompasses both organized and unorganized sectors and yet after so many years of independence, a big chunk of rural populace is still under control of unorganized sector for their financial needs. Formal banking sector broadly consists of the commercial banks and co-operative banks. During pre-liberalization period (before 1991), 20 private sector banks had been nationalized in two phases to implement schemes that would benefit poor in the country. Post-1991 period is seen as change in hypothesis of Indian banking with different type of high-powered committees been constituted to bring in new era in the banking sector.

The most admired amongst them was Narsimhan Committee (I & II), which had virtually changed the course of banking sector in India and introduced many far-reaching reforms in the sector including prudential norms for banks. Other banking sector reforms based on Narsimhan committee recommendations included interest rate deregulation, allowing public sector banks to raise up to 49% of their equity in the capital market and gradual reduction of SLR & CRR to improve profitability. After liberalization of financial sector in India, economic activities have increased manifold during the last three decades and the going strong. Presently we have 12 PSBS, 21 private sector banks in India along with 20 foreign also operating through their branches.