Focus on banks’ health
Apropos of “No financial crisis risk, but bad loans still a problem: Rajan”(May 15). While the private sector banks’ performance with regard to asset quality and margins for Q4FY15 (ending Mar 2015) are progressive, their counterparts, public sector banks, are showing a dismal lack of improvement in asset quality and profitability. Comparatively, public sector banks have greater exposure to steel industry and infrastructure, while the private sector banks’ exposure is skewed towards the retail sector, resulting better asset quality and profitability. The RBI directive that the boards of banks need to scrutinise the financial statements and bestow more focussed attention to strategic issues will certainly pave the way for initiating timely remedial measures. While the economy is bank-dominated and the major share of banking business is with the public sector banks, the health of these banks should necessarily be of significant concern to the government. Government and RBI should step forward to implement more stringent norms, and empower the banks with effective tools to deal with non cooperative and wilful defaulters to recover the bad loans, and it is the need of the hour. Government must kick-start the stalled projects, and since the macroeconomic conditions are favourable for a cut in key rates, without lag, RBI should cut rates to ease the debt-servicing capacity of the projects. The evil effects of the rising bad loans in government-owned banks are curbing the growth and development of the economy. As such, the government must look at giving greater emphasis on rapidly improving the health of the banking industry.
Kamath’s new role
It is nice to learn that KV Kamath, a well-known figure in the Indian banking industry, has been now appointed as the head of the new development bank started the five emerging economies of the BRICS grouping. In the early 1990s, when the financial sector reforms were put into motion, he had predicted difficult times ahead for the Development Financial Institutions (DFI) owing to inaccessibility to low-cost funds, long gestation period on term loans granted, and increasing mismatches in assets and liabilities. He swiftly converted the erstwhile Industrial Credit and Investment Corporation of India into a financial super power, to offer a range of financial services under one roof popularly called universal banking. This appointment adds another feather to his cap.
Srinivasan Umashankar, Nagpur
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