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The rapid growth in the Indian economy kick-started the regeneration of the banking sector in India. Since then banking in India has seen rapid growth and strong contribution from all its four sectors, namely, public sector (nationalized) banks, cooperative banks, private banks and foreign banks. The public sector banks that were performing under a secure but regulated environment were suddenly thrown open to competition in a volatile market. There were cases of fraud and mismanagement which led to a few banks’ becoming sick, that were later on acquired or merged with other banks.
With the beginning of the new millennium, a new era started for Indian banks. While many banks kept pace with the changing times, some have managed to survive and a few have simply vanished from the scene during the period of the study. The fluctuations in the rates of interest, availability of derivatives, futures and options, fluctuation of the rupee, and anywhere- anytime and online banking were some of the salient features of this era. The cause for concern was the Non-Performing Assets (NPAs) of banks, particularly for the public sector banks. The NPAs were partly due to the true business risks, but mainly due to the socialistic approach adopted by the government. As per the government guidelines, Indian banks have to lend loans to farmers and priority sectors at cheaper rates (Chandrashekhar, 2004). Absence of financial instruments for hedging, ignorance about the insurance products, and defaults in debt payments result in NPAs.
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