The financial crisis that erupted
in the US has had its aftershock
on both the developed and developing economies of the world. The
failure of a number of banks in the US, UK, Belgium, Russia and Spain, etc.
impacted their economies severely. During 2008-09, the US alone witnessed
60 banks failures, costing $25 bn. Despite pumping hundreds of billions of
dollars to stabilize the sector, a study on the banking sector stress highlighted
a shortfall of another $75 bn for banks to have adequate capital level. With
the global financial crisis taking new turns, the map of banking is being redrawn
every now and then. Nonetheless, India boasts bustling financial markets
and a sound banking system. The Indian banking sector is well-placed
compared to its western counterparts, which are heavily depending on
government bailout and stimulus packages.
The Indian banking industry is resilient to global shocks and seems to be on
a strong fundamental base. It has not only withstood
the financial turbulence from western markets but also improved
significantly during the crisis. Important financial parameters indicate that
Indian banks have remained healthy and profitable despite
the worst of times. The sector has not experienced the kind of
losses that financial institutions of other countries have faced. Supported by
the strong economic growth of the past, prudent
regulations, absence of complex financial products and low defaulter
ratio, the sector managed to withstand the global
financial turmoil. Indian banks have proved to be efficient users of capital
and compare positively with the banking sectors in other emerging markets
on metrics like profitability and non-performing
assets (NPAs). The sector ranks at sixth position in terms of
efficiency, productivity and soundness among emerging economies.
According to the findings of an ASSOCHAM Financial Pulse (AFP)
study, the sector was the best performing among the BRIC
countries and ranked second in terms of cost ratios and third in terms of
profitability ratios.
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