RBI every time reducing their lending rates to banks, not going to boost economy, in fact the banks getting lowest interest rates from RBI, not passing it on to their customers taking loan. The banks performance should be closely monitored by RBI and necessary powers should be given to RBI to take action against non performing banks.
The problem of sluggish growth is attributed to slow bank credit growth. Even if this is presumed to be true, the bank credit has to be viewed in two broad categories- Big ticket and field level Loans (both Retail, Agri and MSME). The first one has most definitely slowed down largely due to the risk aversion by bank management which is understandable because the experience of being helpless with regards these big ticket lending is evident with the NPA crisis. None of the fast-track mechanisms including the latest NCLT & Bankruptcy and Insolvency Code, apart from the existing mechanisms of DRT, SARFAESI etc have helped the situation. With no apparent recourse mechanism to failed credit how is the bank management expected to lend aggressively is beyond me. The conservatism is justifiable as a prudent risk taker. Secondly, the field level credit has seen a growth in the last year as admitted by the author himself. But then again this growth is largely restricted or constrained not due to the bank’s inability to take credit decisions but more so because of non compliance of market/Public to tax structures and framework. This restricts bank’s ability to lend only upto the declared tune of business by the borrower where as the actual requirement is not shown on paper leading to a mismatch between demand and legally declared turnover (reduced to avoid tax liability). The PSBs are stuck in between. Prudence in lending is as important as being aggressive in the growth story.
I had posted the suggestion in 2014 that all PSBs – barring SBI, perhaps – should be privatised. That remains true in 2019. I have a sinking feeling that I will be posting a similar message in 2024 as well …
“A reluctance to privatize the financial system is to blame.” Spot on. Loss making farmers refusal to quit farming, loan waivers are partly responsible for non privatisation coz government banks are needed by shameless socialist governments to give doles. Socialist Modi is NPA
“A reluctance to privatize the financial system is to blame.” Spot on. Loss making farmers refusal to quit farming, loan waivers are partly responsible for non privatisation coz government banks are needed by shameless socialist governments to give doles.
The learned author has made some strong analytical points– lending leading to credit growth, etc. However, there are a few areas he has overlooked– a bad loan problem for the banking system automatically implies that there is a similar sized problem on the corporate balance sheet (in case of India currently). These firms were large borrowers in the system and unless the over-leverage at these firms is sorted, incremental credit demand is hard to come by. There is no mention of how this problem is supposed to be sorted. Second, associated issue at hand is that most of the over leveraged corporates are in the private sector, it is not too clear how privatization of the financial sector will lead to better outcomes- clearly the private has not covered itself with glory in the non-financial sector space.
Finally, any capitalist economy undergoes periods of excesses which lead to unsustainable debt (either in corporate sector and/or retail sector) and build-up of bad loans at banks. This requires intervention by the governments and central banks to get the system going. A true measure of a system’s sustainability is the fiscal burden imposed on the economy (as % of GDP). If this metric is used the level of costs imposed on the Indian economy over the past 10 years averages to ~1 of GDP, which is amongst the lowest in the world. Some of this analysis is missing in articles on the bad loan problem in India.
Prime reasons for the persistence of the bad loan problem in India is the wide-spread perception that bad loans implies either corruption or incompetence. This narrative has a debilitating impact on decision making and hinders risk taking (which is the foundation of a capitalist system). It will be helpful, if the media debate takes a more nuanced view of the problem at hand and rather than fall into the fallacy of looking for simplistic solutions, where none exists
RBI every time reducing their lending rates to banks, not going to boost economy, in fact the banks getting lowest interest rates from RBI, not passing it on to their customers taking loan. The banks performance should be closely monitored by RBI and necessary powers should be given to RBI to take action against non performing banks.
The problem of sluggish growth is attributed to slow bank credit growth. Even if this is presumed to be true, the bank credit has to be viewed in two broad categories- Big ticket and field level Loans (both Retail, Agri and MSME). The first one has most definitely slowed down largely due to the risk aversion by bank management which is understandable because the experience of being helpless with regards these big ticket lending is evident with the NPA crisis. None of the fast-track mechanisms including the latest NCLT & Bankruptcy and Insolvency Code, apart from the existing mechanisms of DRT, SARFAESI etc have helped the situation. With no apparent recourse mechanism to failed credit how is the bank management expected to lend aggressively is beyond me. The conservatism is justifiable as a prudent risk taker. Secondly, the field level credit has seen a growth in the last year as admitted by the author himself. But then again this growth is largely restricted or constrained not due to the bank’s inability to take credit decisions but more so because of non compliance of market/Public to tax structures and framework. This restricts bank’s ability to lend only upto the declared tune of business by the borrower where as the actual requirement is not shown on paper leading to a mismatch between demand and legally declared turnover (reduced to avoid tax liability). The PSBs are stuck in between. Prudence in lending is as important as being aggressive in the growth story.
I had posted the suggestion in 2014 that all PSBs – barring SBI, perhaps – should be privatised. That remains true in 2019. I have a sinking feeling that I will be posting a similar message in 2024 as well …
“A reluctance to privatize the financial system is to blame.” Spot on. Loss making farmers refusal to quit farming, loan waivers are partly responsible for non privatisation coz government banks are needed by shameless socialist governments to give doles. Socialist Modi is NPA
“A reluctance to privatize the financial system is to blame.” Spot on. Loss making farmers refusal to quit farming, loan waivers are partly responsible for non privatisation coz government banks are needed by shameless socialist governments to give doles.
The learned author has made some strong analytical points– lending leading to credit growth, etc. However, there are a few areas he has overlooked– a bad loan problem for the banking system automatically implies that there is a similar sized problem on the corporate balance sheet (in case of India currently). These firms were large borrowers in the system and unless the over-leverage at these firms is sorted, incremental credit demand is hard to come by. There is no mention of how this problem is supposed to be sorted. Second, associated issue at hand is that most of the over leveraged corporates are in the private sector, it is not too clear how privatization of the financial sector will lead to better outcomes- clearly the private has not covered itself with glory in the non-financial sector space.
Finally, any capitalist economy undergoes periods of excesses which lead to unsustainable debt (either in corporate sector and/or retail sector) and build-up of bad loans at banks. This requires intervention by the governments and central banks to get the system going. A true measure of a system’s sustainability is the fiscal burden imposed on the economy (as % of GDP). If this metric is used the level of costs imposed on the Indian economy over the past 10 years averages to ~1 of GDP, which is amongst the lowest in the world. Some of this analysis is missing in articles on the bad loan problem in India.
Prime reasons for the persistence of the bad loan problem in India is the wide-spread perception that bad loans implies either corruption or incompetence. This narrative has a debilitating impact on decision making and hinders risk taking (which is the foundation of a capitalist system). It will be helpful, if the media debate takes a more nuanced view of the problem at hand and rather than fall into the fallacy of looking for simplistic solutions, where none exists