The long winter in banking

The silver lining lies in the fact that India is a market-dominated financial system with a fairly small role for banking

Indian banking is limping. We often get calls for decisive action that will quickly solve the problem. However, we are reaping the consequences of decades of policy mistakes. The best policy reforms will solve problems slowly. Under perfect conditions, we are in for a long winter in bank lending. The rest of fiscal and financial policy should be designed around this foundation. Luckily, India has a small banking system, and the drag upon the economy is limited.

Banking is the business of borrowing from the public and then lending this capital. The price in lending has to account for a