So what can policymakers do to keep credit allocation healthy and avoid stress in the banking system? It will be important for the banking system not to become part of an excessive build-up of leverage in the corporate sector. However, in India, the financial system is dominated by state-run banks, which is partly responsible for the ongoing bad debt problem. It is encouraging to see that economists at the IMF and elsewhere are working continuously to deepen their understanding of the global financial system with the idea of protecting financial stability. What should Indian policymakers do to build a strong banking system?

Source: Mint April 12, 2018 20:26 UTC