In­dia says pub­lic lenders fo­cused on bad debts than credit growth

Muscat Daily - - BUSINESS -

New Delhi, In­dia – In­dia’s pub­lic sec­tor banks (PSBs) are more fo­cused on lim­it­ing losses from the pre­vi­ous bad debts rather than seek­ing new lend­ing op­por­tu­ni­ties, and thus can­not give low de­mand as an ex­cuse for their credit slow­down, ac­cord­ing to the gov­ern­ment’s mid-term eco­nomic sur­vey.

The Eco­nomic Sur­vey Vol­ume II 2016-17, tabled in par­lia­ment, said: ‘The prob­lem is that pub­lic sec­tor banks are in dam­age lim­i­ta­tion mode rather than seek­ing out new clients and op­por­tu­ni­ties. So, how can they re­gain their true func­tion of pro­vid­ing credit to sup­port eco­nomic growth? What ac­tions will be nec­es­sary to en­sure that prob­lems will not re­cur?’

‘In­ad­e­quate de­mand can­not be the full ex­pla­na­tion for the credit slow­down be­cause the growth in lend­ing by pri­vate sec­tor banks is ro­bust and much greater than for the PSBs’, it said.

The sur­vey, au­thored by chief eco­nomic ad­vi­sor Arvind Subra­ma­nian, noted that bur­dened by stressed as­sets and at­mos­phere of un­cer­tainty that ex­isted for some con­sid­er­able time, banks, es­pe­cially those in the pub­lic sec­tor, have fo­cussed on their non-per­form­ing as­set (NPA) prob­lem than on new lend­ing.

High­light­ing In­dia’s twin bal­ance sheet (TBS) chal­lenge, the ear­lier eco­nomic sur­veys have em­pha­sised that tack­ling this chal­lenge will re­quire four ‘R’s - Recog­ni­tion, Res­o­lu­tion (which tar­gets cor­po­rate bal­ance sheets), Re­cap­i­tal­i­sa­tion (which tar­gets bank bal­ance sheets) and Re­form.

The gov­ern­ment and the Re­serve Bank of In­dia (RBI) have taken im­por­tant ac­tions to ad­dress the TBS chal­lenge. It is to be hoped that they will work ex­pe­di­tiously. But even as they play out, think­ing about a strat­egy - of com­ple­ment­ing res­o­lu­tion with re­form and re­cap­i­tal­i­sa­tion - to cre­ate a bank­ing sec­tor that can help re­vive credit, in­vest­ment and growth must be an on­go­ing pri­or­ity.

‘Even as the new mea­sures aimed at res­o­lu­tion un­fold, it is worth think­ing about the other ‘R’s in the con­text of a strate­gic ap­proach to the bank­ing sec­tor’, the sur­vey said.

The most im­por­tant el­e­ment, surely, is the fourth R - Re­form. Three el­e­ments will be key to any re­form pack­age. First, res­cues can be se­lec­tive. The prompt cor­rec­tive ac­tion frame­work can be in­voked to en­sure the worst per­form­ing banks are win­nowed out of fu­ture lend­ing and shrunk in size over time. Res­cues could then be ex­tended solely to the group of vi­able and near-vi­able banks.

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