Is the much-harassed Indian banking industry learning anything from the crisis surrounding banks in other Asian countries?
Well, there are two things here. First, one of the most important factors in the banking crisis in east Asia is macro-economic volatility. So if India can handle that, it will be OK. And it was macro-economic volatility on a number of dimensions, volatility on real estate prices, volatility in foreign exchange and volatility on the fact that they had borrowed externally a huge amount. So I think if India does not have macro-economic volatility, it won’t have a sudden depression in real estate prices and so on, then it will be OK. India has a problem but that problem is not going to grow suddenly to a dimension where it cannot be resolved. Second, to some extent, the problem largely exists in the public sector and in the finance companies. And as far as the public sector goes, there is always the government backing. So, yes, the deficit will increase but will the bank sector suffer? Yes, it will suffer because ultimately the tax-payer pays for all the problems in the banking industry. I
