Three ex-Reserve Bank of India governors say bad de t will hinder India’s recovery
By Anirban Nag
Indian banks saddled with the world’s worst bad de t pile pose a risk to the nation’s economic growth unless the go nment steps in to recapitalize some of them, according to three former central bank chiefs in a soon-to-be released book.
The problem though is that Prime Minister Narendra Modi has very little resources to help the banks after pledging money to fight the pandemic’s fallout, the ex-central bankers say in the book, “Pandemonium: The Great Indian Banking Tragedy”. The reason: falling revenues that are seen causing the fiscal deficit to blow out to double that budgeted.
“Yes, the bad loan problem is big and real,” Duvvuri Subbarao, governor at the Reserve Bank of India between 2008 and the autumn of 2013, said in the book by journalist Tl Bandyopadhyay. “But, what is also big and real is the fiscal constraints of the go nment.”
India has set aside Rs 20,000 crore ($2.7 billion) to recapitalize state-run lenders this year, a fraction of the $13 billion that analysts say is needed. Over the past three years, the go nment has pumped in Rs 2.6 lakh crore into the dominant state-run banks, but their troubles have only grown.
Problem loans could jump to 12.5% by March -- the highest level in two decades -- as the pandemic puts pressure on the $1.8 trillion financial sector where lending standards, provisioning norms and bankruptcy rules have been eased of late, according to the RBI. State-run banks are particularly vulnerable and with some starved of capital, there are consequences for the economy that is on course for the biggest contraction among major emerging markets.
“In a way, fiscal problem spills over into banking and then financial sector problem with a feedback loop into the real economy,” the book cited Yaga Venugopal Reddy, RBI governor from September 2003 to 2008, as saying. “In brief, non-performing assets are not only a problem but a consequence of other problems.”
“The continuance of real sector problems, partly policy-driven in the most recent period such as demonetization, has aggravated the banking situation,” said Chakravarthy Rangarajan, who headed the RBI during 1992-97. “It is an economic crisis.”
Covid 19 has added to the woes of the financial sector particularly the Banking Sector. Both Go nment an Banking must address the problem realistically and suggest practical solutions as hospitality, aviation, transport, entertainment etc. have suffered a lot. The solutions must not be at the cost of depositors who have already suffered due to interest falls and inflation.
Why didn't these Governors say anything about bad loans during their tenure? Did they get any special knowledge after their tenure?
Pradeep Kumar Tewari
Problem may only be solved by recovering NPA strong handedly from corporates and declaring wilful defaults a criminal offence punishable with imprisonment for life.
better cut expenses. cut down loans. spend less. save more. mon or all loans 24 7. never throw good money after bad. global recession is here
The need is to reduce unproductive expenditure of the goverment .
Hindi new songs Matkar
Slee on wheels, what were these RBI governors doing when NPA was created during their tenure.
Did anyone from the gt asked for their free advise.
These intellectual gurus always clamour for bank recapitalisation as if dozens of borrowers are queuing before banks for loans. Banks ard not able to lend not because of Capital but because of dearth of borrowers. These hawks want go nment to give capital and banks to lend indiscriminately and this was only happening in these intellectual gurus time...
Party funds are immune to IT scrutiny as per ;aw made by this Gt.
hari krishna Johri
Unfortunately people are not in po itics so no chance of people getting ed. Right people are not fraud ,don't bluff & don't lie & hence have no qualification to become a NETA.
There is excess liquidity creating demand push inflation and artificial stock market ballooning. Go nment should have created more jobs . After corana episode it is billionaires like ambani benefitted instead poor and downtrodden as seen from vast disparities in income and wealth. More money with affluent society results in stock market bubble and wealth diversion to real estate and gold than for demand creation. Demand to be accelerated by income rather credit to consumer segments like car buyers etc.
Bad de t problem is caused by over involvement of go nment in banking sector. Go nment decides which companies, sectors get bailouts and banks pay for these bailouts
more than policies and fundamentals it is diversion fraud by big corporates caused the issue.
Ramesh Kapadia Kapadia
Although the said Governors were at their posting time never tries hard to control on bankers,after so long time thy realize it...it's absurd..