Indian Banking: Current Issues and Challenges

The banking system, which constitutes the core of the financial sector, plays a critical role in transmitting monetary policy impulses to the economic system. During the last two decades a large number of developed and developing countries have experienced crisis in their banking sector. India escaped similar banking troubles due to a tightly controlled economy, which existed until the early 90s, wherein opaque accounting practices were widely accepted. Prudent regulations prescribe specific terms of capital adequacy, asset classification, income recognition and provisioning, etc., while an efficient supervisory system ensures adherence to such norms to maintain a sound and solvent financial system. The emergence of banking sector reforms has been a derivative of economic reforms seeking to upgrade the operating standards, health and financial soundness of banks to internationally accepted levels.