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5) In the wake of the current Indian banking system crisis, discuss what measures should be taken by  the government to prevent such incidents in the future.

TopicIndian Economy and issues relating to planning, mobilization of resources, growth, development and employment. Inclusive growth and issues arising from it.

5) In the wake of the current Indian banking system crisis, discuss what measures should be taken by  the government to prevent such incidents in the future. (250 Words) 

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Why this question

Indian banking is reeling under the pressure of twin balance sheet problem. Stressed assets, poor corporate governance and recapitalization are some of the most urgent issues faced by Indian banks today. Banking sector is vital for the functioning of any modern economy and any crisis in banking system has spillover effects on the economy which can lead to economic crisis. The issue has been in news for a long time. IMF has recently come up with a set of suggestions for Indian banking system. Hence the issue is important for mains exam. The question is related to GS-3 syllabus under the following heading-  Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment. Inclusive growth and issues arising from it.

Key demand of the question.

The question wants us to simply discuss in length, what measures should be taken by the government to prevent banking crisis of such nature, in future. The answer should be holistic and attend to all related aspects of the issue.

Directive word

Discuss- we have to discuss in length about what should be done by the government to prevent any future banking crises. There are many aspects of this issue and many radical solutions. You should stick to the most important and feasible ones.

Structure of the answer

Introduction-  Highlight the present situation of the banking sector in India and briefly mention the main causes behind the cross crisis.

Body- Divide the body into two main parts. In one part discuss in points, what measures have already been taken by the government like Bank board bureau, insolvency and bankruptcy code, recapitalization, consolidation, RBI’s Framework resolution etc.

In the other part, discuss what further measures should be taken by the government in order to prevent such incidents in future. You can mention tighter macroprudential norms, an independent banking supervisor, smaller footprint of government in the corporate sector, and strong corporate governance. You can also mention Kotak committee report and highlight some of its recommendations.

Conclusion- You can conclude your answer by citing results from global financial stability report 2017 of IMF.