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Tuesday, 26 January 2016


I think our RBI governor is the only one concerned about our stressed banking sector, the rest are just doing their jobs. Only if you really feel, you would react like that. What he meant was, if you default on your loan, you cannot spend lavishly. Loans given to companies are funds accumulated by banks from general public as deposits or borrowed from the market. But no one even at the highest level understands this concept. They only understand the concept of limited liability.

Do banks (especially PSU banks) have limited liability, can they say no to depositors after going bankrupt. What will the government do? Forced mergers or convenient bailout! PSU banks where the majority stakeholder is the government, cannot default but can definitely become sick and stressed. According to finance ministry, gross non performing assets of public sector banks increased by 25% to Rs. 3.4 lakh crore in September 2015 from Rs. 2.5 lakh crore in the same corresponding period previous year. These figures are large enough to loose sleep at least for the RBI.   

But we have this chalta hai attitude. With population of 1.3 billion people, 40% have no banking access. A major chunk of urban population has started living on credit cards and personal loans. With this cultural shift who is concerned about their actual bank balance. What they need is credit limit sanctioned by the bank. Though our government banks have realized their follies and tightened their credit appraisal system they need support from government not just capital infusion. It is understandable that the government has too much on its plate, they can at least do one thing, renew RBI governor Raghuram Rajan’s term in September. 

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