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The period from 1967-1991 was characterised by nationalisation of banks. However, administered interest rates, directed lending and little operational flexibility took a toll on the profitability of banks. With a view to improving the fragile health of banks, aside from strengthening NPA/capital norms, the RBI also allowed the entry of private banks in the early 1990s. Banks were also provided with freedom to fix their own deposit and lending rates. But PSU banks have been consistently losing ground over the past few years. Social obligations, directed lending practices and weak risk management processes became the Achilles' heel of the state-owned banks.
Interactive: Lavanya Prabhakaran
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