There is not one concern. We have had a constant and gradual movement in financial sector reforms and seen encouraging results. Particularly in the last two years we have seen consistent improvement in most of the parameters — be it NPAs or profit ratios. The commercial banks today are much stronger than what they were ten years ago. That’s something unique in emerging markets — something we can be justifiably proud of in terms of macro management.
Way forward, we have to continue this movement. Banks will have to improve the credit delivery system. In the context of Basel II, they have to particularly concentrate on risk management improvement as the emphasis will shift from micro management to systems management. That’s a key challenge ahead of us — both for the regulatory system as well as for the commercial banks.
Developments in debt market and foreign exchange market are also remarkable. India has probably exhibited the highest level of financial stability in the emerging markets.
As banks improve their risk management systems, the intermediation cost as well as potential NPAs will come down.
