PK's Romp through India's Financial Sector - Moneylife

PK's Romp through India's Financial Sector - Moneylife


Allow me to quote the concluding
paragraphs from Mythili Bhusnurmath’s article “Interpretation of Maladies”
published in The Economic Times today(February 1, 2016):

NPAs have been building up over the years. Yes, we need to end the pernicious
system. But any clean-up will take time. Today, when the strengthening dollar
is adding to corporate woes, the slowdown in China is impacting industries like
steel, and banks are already under pressure thanks to the RBI’s insistence on
adopting the new marginal cost lending rate and higher Basel 3 norms, is not
the time to tighten the screws on banks. It is also not the time to force the
government’s hand on capital infusion.
the RBI persists in its stated course of action, PSBs will have to make
aggressive provisions and the government will have to cough up additional
capital at a time when such capital is much better deployed elsewhere. As The
Economist put it so well in another context, “a penchant for the zigzag and the
gentle curve over the straight line comes at a cost”. But sometimes, it is the
only way and is worth the cost. It takes a brave man to try and change the
established order. The governor has shown us he is a brave man. But it takes a
braver man to recognise that when circumstances change (as they have today), it
is better to make a tactical retreat and return to the battle after the storm
clouds have passed.”
My response:
“The plea to RBI to go
slow on its policy initiatives to infuse professionalism in handling stressed
assets by PSBs, though an ideal short-cut to ensure that economy does not
suffer on account of sudden drying up of credit, will generate expectations
that the GOI and RBI will remain soft with inefficiency in all situations for
one reason or the other.
Now is the time to put
pressure on private sector banks to move out to risky areas and expand their
share in total banking business. If this is not done, more than the existing
players in the private sector, new banks of various denominations too will
become risk-averse  and avoid sectors and
geographical areas which are not considered ‘profitable’ and the burden of
public sector banks to cater the left-over clientele will increase. Still, on
the judgment day, they will not be spared from comparison with their private
sector counterparts. The need of the hour is a level playing field for public
and private sector banks in all areas, from management to resources
mobilisation and credit decisions.”
Institutions need to be
allowed to be run professionally.
M G Warrier, Mumbai


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