Sustained recovery in the Indian economy depends crucially on the banking system getting back to lending
Indian banking is facing a peculiar challenge of liquidity imbalances. There are banks (large private sector banks, mainly) that are willing and able to lend and there are others (government owned) that are either unable to due to regulatory restrictions or are unwilling by choice to lend. As a result, we see incrementally credit deposit ratios of the lending banks exceeding 1 and those of the credit-shy banks below 0.5. What this means is that some banks are lending more money than they are raising through deposits, while others are not lending, and instead buying government securities.