Ballooning non-performing loans (NPLs), over-banking and lethargic reform are causing India’s banks to punch below their weight, with public sector banks often epitomising the industry’s inefficiencies and inertia. Recent policy announcements are underscoring these shortcomings, although there are signs of improvement in asset quality and better management.
The Reserve Bank of India (RBI) cut the repurchase agreement (repo) rate by 50 basis points (bps) in late September, adding to the pressure on Indian public banks’ margins. This comes at a time when high NPLs continue to impact on public banks’ books, albeit with some isolated improvements. To add to this, in August 2015 the Indian government promised more capital infusions for public banks to ensure that they will comply with Basel III capital regulation by 2019 – a further reminder of how vulnerable these lenders still are.
