Banking a boost to economic growth

The economic reform of 1991 played a pivotal role in the economic development of India. Reaping its benefit, the growth of the country reached around 7.5% in the late 2000s. It is also expected to double the average income within a decade. According to the analysts, if India can push more fundamental market reforms, it will be able to sustain the rate. India is world's 12th largest economy and also the 4th largest in terms of purchasing power parity adjusted exchange rates (PPP). It is the 128th largest in the world on per capita basis and 118th by PPP. However, states have a major role to play in the economic development of India. The banking sector, being the barometer of the economy, is reflective of the macro-economic variables. While the Indian economy is yet to catch strength, the Indian banking system continues to deal with improvement in asset quality, execution of prudent risk management practices and capital adequacy. Indian banking industry, with total asset size of Rs. 81 trillion (USD 1.34 trillion), is expanding continuously but on a cautious note. The fact that the industry is plagued by bad loans, the lenders have chosen to go slow in terms of credit off take. This paper deals with several such kinds of issues and mostly secondary data have been compiled to make a comprehensive analysis up to 2004. The study determines the growth of the banking sector in terms of these determinants covering both the pre and post reform era.