Twenty years ago India’s banking sector was struggling. Today it is moving toward a better place.
India’s new Prime Minister Narendra Modi in mid-August launched a “financial inclusion” plan to provide a bank account for every Indian household. Called the ‘Jan-Dhan Yojana,’ or Scheme for People’s Wealth, the plan seeks to provide financial independence to countless unbanked Indians through a two-phase plan. Just about 20 years ago, India’s banks were in no shape to move on such a venture.
Back then the country’s poor state of banking affairs was forcing India’s blue-chip companies to offshore for cheap funding. “India’s banking system is in poor shape and many of its most financially strained banks belong to the public sector,” International Treasurer wrote. “Thus, the government must seek to manage the pace of financial sector reforms, as it moves to consolidate, modernize, and privatize the banking system. Most importantly, it must cut banks loose from public coffers before market-driven insolvencies bust any semblance of a budget.”
Mr. Modi is certainly trying to correct those wrongs today, and the bank sector, with the support of stronger central bank under Raghuram Rajan, is much deeper and able to keep companies onshore.