Indian banking: Challenges in the new decade

Shall we see the closure of the bad loan saga in the new decade? There is no Lehman or East Asian crisis to blame; it's our own doing

Today, the Reserve Bank of India (RBI) will conduct the second phase of Operation Twist by simultaneous buying and selling of government securities. It will buy long-tenure bonds and sell short-term ones to bring down the bond yields and flatten the curve, narrowing the term premium. The 10-year bond yield, which rose to 6.8 per cent in the recent past fearing higher government borrowing to bridge the widening fiscal deficit, is now hovering at 6.5 per cent.

Operation Twist “manages” bond yields, brings down the cost of borrowing for the government and saves banks from treasury losses. Banks, in fact,