Lend­ing Gets a Help­ing Hand

Re­cap­i­tal­i­sa­tion and merg­ers of PSBs and other bank­ing re­forms aim to ease the liq­uid­ity crunch

India Today - - ECONOMY - By Sh­wweta Punj

The Jour­ney So Far

The gov­ern­ment has an­nounced the merg­ers of sev­eral public sec­tor banks (PSBs), re­duc­ing the to­tal num­ber from 27 to 12 over the next few years. Fi­nance Min­is­ter Nir­mala Sithara­man an­nounced the merger of ten PSBs into four en­ti­ties, which would strengthen bal­ance sheets and al­low banks to take bold lend­ing de­ci­sions.

The gov­ern­ment has also an­nounced an up­front cap­i­tal in­fu­sion of Rs 55,520 crore for PSBs to ease stressed bal­ance sheets

Gov­er­nance re­forms in­clude the ap­point­ment of chief risk of­fi­cers for PSBs and bet­ter suc­ces­sion plan­ning for se­nior ex­ec­u­tive po­si­tions—as well as al­low­ing boards more flex­i­bil­ity in de­ci­sion-mak­ing for bet­ter func­tion­ing

The gov­ern­ment has an­nounced a scheme to im­ple­ment its budget an­nounce­ment of a one-time par­tial credit guar­an­tee of Rs 1 lakh crore for PSBs to pur­chase the pooled as­sets of non-bank­ing fi­nan­cial companies (NBFCs) and hous­ing fi­nance companies. This is ex­pected to ease the liq­uid­ity crunch in the NBFC sec­tor.

Is It Enough?

There are con­cerns that the PSB merg­ers could dis­tract banks from lend­ing, es­pe­cially crit­i­cal in view of the se­vere liq­uid­ity crunch. Bank re­forms have been pend­ing for long and re­cap­i­tal­i­sa­tion is one of the many is­sues that needs to be ad­dressed. The Cen­tre must en­sure greater ac­count­abil­ity, in­de­pen­dence and trans­parency at PSBs, as well as re­store con­fi­dence and trust be­tween the bank­ing com­mu­nity and bor­row­ers

The Un­fin­ished Agenda

The gov­ern­ment’s merger plan needs to en­sure that lend­ing is not in­ter­rupted, and that sec­tors starved of credit do not suf­fer

The gov­ern­ment needs to en­sure that the rate cuts by the RBI are quickly passed on to con­sumers

Re­forms at PSBs need to be car­ried out thor­oughly to be re­store trust be­tween bankers and bor­row­ers

BUILD­ING THE NA­TION Work­ers at the Toy­ota Kir­loskar fac­tory in Bi­dadi, near Ben­galuru

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