The obvious solution would be to let public sector banks raise funds through public equity issues. But since this would reduce the governments share of equity ownership in these banks, this has not found favour with the government. Nor has it been injecting capital into these banks. Given the capital crunch, an option for the banks is to limit deposit growth, which can be done by offering lower interest rates and curtailing their branch network expansion. The banks could also go slow on lending. This, too, would mean a loss of market share. Private sector banks like ICICI, which plans a huge public issue soon, will then be able to grow much faster without any capital inadequacy problem. It would be better, however, if the government gives at least some public sector banks the freedom to raise capital and get on with their job. For some of them, capital can be raised without any loss of government control; reportedly, Punjab National Bank may soon see government ownership drop to 51%. This is welcome. Looking further, however, there is no option but to take some hard decisions. The government must act fast, or else, the banking sector will suffer.