General Studies (Paper - 3) : Model Question & Answers

Question: 'Macroeconomic stability is unimaginable without a healthy banking sector.' Do you agree? What do you think are some immediate reforms needed in the present Indian banking sector?

Answer: This statement is justified as banking sector is associated with multiple roles in economy. It is provider of credit to the companies and households so that growth can be sustained both through higher investment and consumption. Banks play crucial role in government securities market also to ensure that government can continue to play developmental role. Banks role in capital markets as institutional investors and underwriters is also important. In this background health of banking sector is crucial, for instance through maintenance of lower levels of NPAs, following the BASEL norms etc.

Some of the immediate banking sector reforms needed are:
(i) Reduce NPAs by steps like restructuring the NPAs through joint lenders’ forum or the corporate debt restructuring (CDR) mechanisms and ensure strong appraisal of the borrowers in future.

(ii) Complete shift towards BASEL III norms through.

(iii) Encouraging non-governmental organisations engaged in micro-finance activities. Banks are being encouraged to adopt the agency model by using the infrastructure of civil society organisations, rural kiosks and village knowledge centres for providing credit support to farm or rural sector generally.

(iv) Stepping up Priority Sector Lending, particularly to the agricultural sector.