The biggest challenge before the new govt

More than liquidity crisis, banks' risk aversion is at the root of the current problem. Despite two policy rate cuts, most banks have raised lending rates

A senior banker has recently said that traditionally the real sector affects the health of the financial sector but now, in the world’s fastest growing major economy, the financial sector woes are set to spill over to the real sector. My aunt agrees with the banker. Running the risk of being dubbed a Cassandra, she says it will be a big mess unless the new government and the Reserve Bank of India (RBI) act on this on a war footing.

Have the government and the banking regulator been in a denial mode? Not exactly. But, they need to act fast. Why?