Performance of the Indian Banking Sector During Financial Crisis

Abstract

In India's financial system, banks are essential to its operation. By utilizing more than two-thirds of family savings, they offer more than 90% of the commercial loans in the nation. In addition to taking deposits and extending credit, banks also carry out a variety of additional tasks, including financial inclusion, agriculture, renewable energy, the issuance of bonds, foreign currency facilitation, priority sector lending to MSMEs, and numerous other tasks. Any deviation from the appropriate operation of banks, which play a crucial role in managing the financial system of an economy, results in an economic crisis. India was not an exception when it came to how the economic crisis affected economies and finances worldwide. It was a significant issue for the developed economies. The problem of the financial crisis originated in large-scale defaults in the U.S. Sub-prime mortgage market and associated market in August 2007, which badly affected the financial sector in the U.S. and then Europe which lasts an impact on the banking sector across the world, including India. The financial crisis of 2008 had an impact on the banking industry since it cost banks money due to mortgage defaults, stopped interbank lending, and dried up the consumer and commercial credit. In the present paper, the performance of the Indian banking sector has been evaluated with variables viz., liabilities to the banking system, borrowings, aggregate deposits, etc. The performance has been examined in pre-crisis, crisis, and post-crisis periods. T-test has been used for the purpose of analysis. Although various challenges were faced during the research, including a tough time gathering data, a lack of data, and a paucity of awareness as to how banks operate in their early stages. However, this work is intended to be useful to researchers and scholars because it discusses the effects of the financial crisis using data from a few chosen Indian banks to assess how well they fared during the crisis.