Government and RBI regulations All commercial banks face stiff restrictions on the use of both their assets and liabilities. The RBI requires that domestic Indian banks make 40 percent of their loans at concessional rates to priority sectors' selected by the government. These sectors consist largely of agriculture, exporters, and small businesses. Since July 1993, foreign banks have been required to make 32 percent of their loans to these priority sector. Foreign banks, however, are not required to open branches in rural areas, or to make loans to the agricultural sector.
Banks have no effective mouthpiece either.
Grey future One more reason being the opacity of the The Reserve Bank of India. This does not mean a forecast of doom for the Indian banking sector the kind that has washed out south east Asia. And also not because Indian banks are healthy. We still have no clue about the real non-performing assets of financial institutions and banks. Many banks are now listed.