Banks, and the elephant in the room
Banks, and the elephant in the room: Despite the many safety nets that are in place, depositors need to take stock of the huge NPA burden and its financial impact...
"The proposals put forward by Reserve Bank of India deputy governor, Viral Acharya, to resolve stressed assets have been widely discussed. But another important but understated issue that Acharya has called attention to has failed to trigger as much debate. Should weak and undercapitalised banks be shown some ‘tough love’ by restraining them from taking on fresh deposits? Should depositors take cues from the market to assess the growth potential of banks and stay clear of weak banks? Acharya believes this will restore market discipline in deposit migration — away from the weakest to healthier public sector banks (PSBs).
In a country where PSBs hold the lion’s share of public deposits, and depositors repose their faith and pledge their undying loyalty to state-owned banks, it may seem alarmist to even suggest such a radical move. A freeze on incremental lending or deposits, even temporary, can cause a run on the bank."