Growing non-performing assets is a recurrent problem in the Indian banking sector. Over the past two decades, there have been two such episodes when the banking sector was severely impaired by balance sheet problems. A comparative analysis of two banking crisis episodes— one in the late 1990s, and another that started in the aftermath of the 2008 Global Financial Crisis and is yet to be resolved—is presented. Taking note of the macroeconomic and banking environment preceding these episodes, and the degree and nature of crises, policy responses undertaken are discussed. Policy lessons are explored with suggestions for measures to adapt to a future balance sheet-related crisis in the banking sector such that the impact on the real economy is minimal.
