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...

Excerpts:

"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."

Comments

Tenkasi Nallasivan said…
Our people never loose faith in the Public Sector Banks. That is their strength and weakness.
It is of course true the Bank has recovered and survived a closure as the Public Sector Bank
I have in mind carried an accumulated loss of more than Rs.3000 crores and still there was no cause of worry for the Bank. Our Depositors even did not perceive that such a huge accumulated loss meant erosion in Deposits. Because they are owned by the Bank. It is an irony when the promise given in the Currency note by the RBI carried no relevance what is the sanctity of a Government ownership?
March 13, 2017 at 1:05 AM
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