Credit woes

Asset quality deterioration among public-sector banks, one of the most important factors driving the negative outlook of India's banking sector, may have reached a bottom, according to Moody's Investor Service. That's great news, but Moody's also says the recovery in corporate credit quality is expected to be a slow multi-year process. That's because the health of companies in India, while having stabilised, continues to be fragile on an absolute basis with high debt levels and weak debt-servicing metrics. This is particularly relevant for public-sector banks, which have a higher share of corporate debt than those in the private sector. While Reserve Bank of India Governor Raghuram Rajan has rightly blamed promoters who insist on their "divine right to stay in control despite their unwillingness to put in new money", it's also a fact that India's banks need to put their own house in order. For example, there have been many instances of banks topping up old loans to companies even when the whole world knew that they were not exactly in the pink of health.

Our cover story, therefore, looks at the governance standards in banks, especially a majority of the public-sector ones. The story examines why PJ Nayak, chairman of a committee to review governance of boards of banks in India, said in his report that "it is a fundamental irony that...the government disadvantages the very banks it has invested in."

The magazine also looks at the disruptive potential of the digital medium which has prompted lenders to turn themselves into everywhere banks. Though foreign and private banks have taken the lead here, there are a few exceptions in their public-sector peers as well. Read about them in the following pages.

Also, six of the country's leading bankers and one who is about to set up a bank came together at the Business Standard Banking Round Table. Find out what they think about economic recovery and why they feel the need for a strong bankruptcy law to improve credit culture.

The Banking Annual is also about celebrating success. A five-member distinguished Jury headed by former RBI Deputy Governor Subir Gokarn selected Romesh Sobti, MD and CEO of IndusInd Bank, as the Business Standard Banker of the Year. Happy Reading!