How to deal with the banking crisis

India needs a two-pronged strategy; more financing for firms and RBI reforms

Various solutions are being proposed for the banking crisis. Merging PSU banks does not change anything. A big PSU bad bank is the politically attractive choice, but that does not solve the deeper problem. It would make sense to remove barriers to non-bank finance, so as to support the economy at a time when bank credit will not grow, and simultaneously undertake RBI reforms.

The problems of banks in India have long been the subject of a cover-up. But the bad news is increasingly slipping out. There is now an increasing sense that we can count the sound banks on