Banking system

| Updated on January 04, 2011 Published on January 04, 2011

This refers to your edit that ‘Caution and prudence pay' ( Business Line, January 3). With most of the banking system in the public sector, it has been possible to achieve success because of the centralised regulation in India. Development banking flourished in the three decades preceding 1990. Since then, it has been given a low priority. It could have played a vital role in building infrastructure.

The Reserve Bank of India could transmit its experience with banks that were not doing well at certain points in time, to improve the system as a whole from time to time. Though the nationalised banks have been virtually tuned to the planned management of the economy through the RBI, adequate control could be exercised. The institutional mechanism created over the years has stood the test of time. As the editorial says, ‘systemic risks remain', but with continued RBI vigilance, it should be managed well.

Mergers and acquisitions are one way of strengthening some of the existing entities.Also, there is a definitive place for development banking for financing infrastructure, industry and agriculture. Besides organised sector banking, there is a need for revisiting rural sector financing. Greater vigilance on micro-financing and money lenders is an essential requirement.

The aim of ‘inclusive growth' has no meaning unless the institutional mechanism in the unorganised areas is well established. With growing incomes , there is ample scope to use savings in rural areas for financing mini, small, and medium enterprises in agriculture, infrastructure and industry.

K. U. Mada


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Published on January 04, 2011
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