Financial stability | Business Standard Editorials

Financial stability | Business Standard Editorials

My VIEW:

M
G Warrier
2005/1-D,
DREAMS
LBS
Marg, Bhandup (West)
Mumbai-400078
(+919349319479)
To
The
Editor
Business
Standard
December
25, 2015
RBI
and financial stability
This refers to your
editorial “Financial stability” (December 25). Perhaps, problems of Indian
financial sector are much deeper and may need policy initiatives from GOI additional
to regulatory reforms, implementing new bankruptcy code and further dilution of
Centre’s stakes in public sector banks(PSBs).
The revelation that ‘while the PSBs
accounted for 72 per cent of total banking sector assets, they accounted for
only 42 per cent in total profits during 2014-15, with the private sector
banks(PVBs) surpassing the PSBs in the share of total banking sector profits’
may not surprise anyone who has been following the pressures on PSBs to do
‘directed’ business with management and HR-related constraints emanating from
their government ownership. The same report gives the reason for PSBs to remain
in public ownership. That is the retarded growth prospects (remaining happy
with less than 30 per cent share in India’s banking business) and unwillingness
to penetrate to rural and semi-urban areas evinced by private sector banks.
Reluctance to take risk and an eye on creamy layer of business distinguish
private sector banks from PSBs in India.

The continuing deterioration in the asset
quality of banks in general, and PSBs in particular, can be traced to inadequate
attention paid to infusing professionalism at the top and consequent
inefficiency from top to bottom.

As other institutions like cooperative
banks and NBFCs are also not in better health, needful has to be done and done
quickly to restore the health of scheduled commercial banks across private and
public sectors. Government should own the responsibility to ensure necessary
linkages for credit provided under ‘directed lending’ so that the asset created
generate enough incremental income for repayment. Banks should be guided to
improve pre-disbursement appraisal and monitoring of large-sized advances. For
the purpose, banks will have to acquire sufficient in-house skills and the
present trend of ‘outsourcing skills’ can be harmful in the long run.

M G
Warrier,
Mumbai



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