Are there powerful disincentives in public sector banking?
I think there are distortions of various kinds, both positive and negative towards the public sector banks. Interest rates have come down but not for every corporate. How do you react to that? One of the problems in India is the huge fiscal deficit and the question is how much is that crowding out private credit. I do not think that we have a clear cut answer. In the long run, if you have such a huge fiscal deficit, eventually, it start crowding out private credit. It does that in more ways than the traditional thinking that it is absorbing part of the savings and therefore pushing up the interest rates for private sector. When banks find there is a “safe alternative” they are less prone to take risks in investment and so you get the spectre of banks investing in safe papers. You can keep saying that there is no credit demand but if you improve the infrastructure and the laws governing collection, those creditors would become credit worthy. When there is a safe lending avenue, there is
