India’s banking woes

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India’s banking woes

There’s no doubt that the UPA left poison pills behind; the Government must get tough

The Indian banking sector is in crisis and someone needs to call out the culprit, the UPA Government, which allowed ridiculous loans to be approved. If facts are investigated, it will emerge that several gold-plated loans were given to favoured businessmen. It is, therefore, not surprising that journalists, friendly to the previous regime, are flying kites and are trying to discredit legitimate business loans given to people close to the current administration. When Congress leaders attack the Modi Government for allowing defaulters such as Vijay Mallya to ‘escape’, one cannot but be astounded at the hypocrisy of such spokespersons. It was the UPA that gave massive loans which did not have a semblance of logic. Anybody with a modicum of intelligence could see that Mallya’s airline was in a tailspin and was going to be crushed under the one-time liquor baron’s immense ego. And it is not just Mallya to whom loans that defied logic were given, infrastructure projects from roads to airports were ‘gold-plated’, the cost of building a kilometre of four-lane highway inexplicably jumped four-times in that decade as mafia builders ripped off the banks with Government’s tacit support. As much as one would say that Prime Minister Narendra Modi and Finance Minister Arun Jaitley have been hobbled by the ineptitude and downright thuggery of the previous administration, the fact is that they are the ones in power today. Blaming the previous Government is not an excuse that can be taken to voters after completing three-quarters of one’s term in power. There’s no doubt that the global financial crisis, coupled with stricter rules, implemented by both former and present Reserve Bank of India Governors, Raghuram Rajan and Urjit Patel respectively, have made most Indian banks reluctant to give loans to small and medium industries. These projects are essential to get job growth going and, thus, encourage a consumption economy. India’s economic growth has been constrained over the previous few quarters because of this fact. While a 6.5 per cent growth rate is nothing to be ashamed of, it is certainly not enough to keep pace with India’s ‘demographic dividend’ which runs the risk of becoming a ‘demographic burden’. Jaitley rightly noted that large industrial enterprises do find it easier to raise funds from bond markets and from foreign banks due to their credit ratings, something that self-appointed social media economists fail to understand.

With gross non-performing assets growing from Rs 5.02 lakh crore to Rs 6.41 lakh crore between March 2016 and March 2017, the situation is critical. The new insolvency law brought in by the Government, despite some flaws, is a beginning in the process to recapitalisation. Crony capitalists encouraged by corrupt politicians of the previous regime should see their projects taken away and their assets built up by siphoning funds from their companies, should be auctioned off. Yes, the banks and the Government will need to take a haircut, a massive one at that, but that’s the only way forward. The Government must think before it recapitalises the banking system. Bankers should realise that things are not as bad as they were in the aftermath of the most corrupt administration India has ever seen.

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