The author, whom I know well, is a professor of economics at Pondicherry University. He has distilled the knowledge gained during his years at the RBI and his academic training into a well-designed and much-needed book that will serve both students and practitioners of banking. This is a magisterial work which will stand the test of time but only with fairly frequent revisions.

It’s very comprehensive, covering the whole gamut of issues. More importantly, it is almost entirely devoid of opinion. That’s why it is the sort of book that should be on the desks not just of students and bankers but also journalists who can, and do, often exhibit a great deal of exasperating ignorance.

After explaining banking practice and monetary policy in exhaustive detail, Samantaraya finally comes to why the Indian banking system is so full of problems that every two decades or so it needs a huge infusion of capital from taxpayers’ money.

The main problem of course is the high loan delinquency. This means the banks don’t get back either the whole or a large part of the loans they have extended.

Samantaraya identifies five main reasons. These are excessive lending to infrastructure projects during 2006-12; political interference in favour of friends; political appointees in the boards of public sector banks; short tenures of CEOs; and, the fear of taking decisions lest the CBI or the CVC start investigating.

Overall therefore the public sector banks which still dominate banking massively are simply not good enough. That’s the unspoken conclusion.

Towards better banking

Samantaraya has provided a brief summary of all that’s been done to achieve better bank management. Much of this has happened since 2014 because by then the whole system was in extremis. The RBI was finally given a free hand by the government to fix the problems of Indian banking. By 2023 its efforts had succeeded and Indian banking had returned to normal financial parameters.

But as always there are new challenges. One of these is climate change and the role that banks can play in mitigating it. Samantaraya has dealt with the issues in a clear, if not comprehensive, manner. His main conclusion is that banks will have to be more aware of the risks that climate change causes their loans.

He says the channels through which these risks arise must be traced and the quantum of associated risks must be counted. Are Indian banks in a position to do it? Most certainly not, which is why, he says, both regulation and banking practice must raise their game.

Another big question relates to the size of a bank. How big should it be? Samantaraya says it’s difficult to say what the optimal size is or should be. But he has no such doubts on the number of banks India needs: 20. However, this is an arbitrary number because it can always be asked why not 21 or 19.

Besides there’s the ‘too big to fail’ problem that lets very big banks take very high risks because they know they will be rescued by governments. It’s called the moral hazard problem in economics.

As to foreign banks, he says let a hundred flowers bloom because they are crucial for foreign trade. But should they be allowed access to domestic capital?

The capital problem

In the end, though, it all comes down to the very nature of banking itself, which is avaricious. Samantaraya is careful not to call it that but he does say that there is a tendency in banking to privatise profits and socialise losses. It’s what I call the ‘heads I win, tails you lose’ problem in capitalist economies.

Samantaraya’s solution is simple: the owners and shareholders must have higher levels of equity. That will force them to be less cavalier about risk. True, but this formula doesn’t work when the government is the only or the major shareholder.

Check the book out on amazon.

Published on October 5, 2025