Indian banks have come a very long way from the mess of the early 1990s—with more capital, higher levels of efficiency and fewer bad loans. It’s little wonder that banks’ share prices have soared in the past decade.
But the new report on currency and finance from the Reserve Bank of India (RBI) that was released on Thursday shows that Indian banks are now at crucial crossroads. They need more capital to keep growing, have to adapt to a new era of technological changes and financial innovations that make banking more complex than before, would do well to consolidate with mergers and acquisitions— and most importantly, prepare for a time when global banks will have easier access to their market, perhaps as early as April.
None of this is possible till we have further reforms in the banking sector. Part of the job needs to be done by the government, especially by amending banking laws. But the other part is a task that the new RBI governor D. Subbarao needs to deal with.