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Opinion

Indian banks need reform, not just recapitalization

Government financial package will fail without further action

| India
Lending to the industrial sector by the Bank of Baroda and other large state-owned banks has been modest so far this year.   © Reuters

The Indian government hopes that a recent 2.11 trillion rupee ($32.6 billion) bank recapitalization package will spur credit growth, reverse a slowdown in economic growth and fix the sector's mountain of bad debt. But recapitalization may be the wrong medicine for the sector's underlying problems, notably low demand for loans from the private sector and excessive government interference in the management of state-owned banks.

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