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Last updated: 31 Oct, 2017  

Rupee.9.New.Thmb.jpg Bank recapitalisation

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Bikky Khosla | 31 Oct, 2017
The Centre unveiled a mega recapitalisation package for public sector banks last week. Under the scheme, a whopping amount of Rs 2.11 lakh crore--representing nearly 1.2 percent of India's GDP--is to be allocated to these banks over a period of two years. Beyond doubt, this is a step in the right direction and a much-needed one in the background of the lingering problems of bank bad loan, poor loan growth and sluggish private sector investment. The recapitalisation amount is significantly large, and experts see enough potential in this package to kick-start the economy.

But there are some 'ifs'. In order to ensure that these efforts do not go to waste, it is imperative that the past mistakes are not repeated. Besides, the bailout also raises a moral hazard question as banks may take this move as a signal that the government will always come to their rescue if their loans turn sour. So, alongside this aggressive capital infusion, better banking governance must be pushed to prevent indiscriminate lending in the future. At the same time, a balanced decision must be taken to ensure that enough capital is injected for allocation of fresh loans.

Meanwhile, concerns are raised that the move may give a big push to our debt-to-GDP ratio. In April this year, the N.K. Singh committee, constituted to review fiscal discipline, favoured curtailing the central government's debt at 38.7 percent of GDP by 2022-23, down from 49.4 percent in 2016-17. But now the target seems difficult to achieve. According to a recent report, India's debt-to-GDP could increase by around 120 basis points with issuance of bonds under the recapitalisation plan. Only time will say whether it is an acceptable trade-off for the revitalized banks, or how far the latter succeed in paying back to the economy.

The government should also stop turning a blind eye to a serious issue recently pointed out by an internal study group of RBI: indulgence into unfair practices, both by public and private sector banks, to keep interest rates artificially high with respect to floating rate loans. They quickly pass on the RBI rate hikes to borrowers, but keep most of the gains of policy rate cuts with themselves. So far, the RBI has done nothing after discovery of such malpractices. If these practices are allowed to continue, no reforms will be able to change the present situation much, particularly for the MSME sector.

I invite your opinions.

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Bank Recapitalization
SJS Ravi | Wed Nov 8 15:55:50 2017
The same bandage repeatedly on festering sores! Where is the analysis of this recurring problem of NPAs? The causes are many and need to be addressed with care. Remedies of some aspects may yield results but not all. Recapitalization again and again is no solution. This is just firefighting at the twelfth hour. First, do not stir the pot of economy by prudish holier than thou attitude and washing India of corruption and black money for political gains. Even the world's # One Economy is not squeaky clean, nor is China, Russia, Korea or Japan. You want to live in a Utopia even when you are yourself not clean enough to be a part of it, no one is. Jolts to the economy were in the form of so called scams of earlier regime and politically motivated ones like Demonetization and GST. Add to that the high prices of crude prevailing during the earlier regime which crippled the economy. The present regime has of course gobbled up all the gains in international crude prices without any accountability. The pay commissions give hikes to govt employees. But other recommendations are swept under the carpet. Public sector employees and bank employees demand parity. Pensioner's live much longer now and it is a huge spiraling burden with no contribution workwise. It is all leading to unproductive burden on economy. The crisis is real and no amount of taxation can fill the hole. Use the funds as incentives to revive Economy! Let the banks go under or amalgamate or be taken over by Pvt. Banks

CEO's Note for Bank recapitalisation.
Harishkumar Trivedi | Wed Nov 1 17:55:10 2017
I believe , this is incomplete step of GOVT. What about responsible persons who create a large amounts of bad debts and handicapped our economy.

Bank recapitalisation
R k Bhandari Chandigarh | Wed Nov 1 06:04:21 2017
Absolute non sense drama to revitalise the selected banks .. another hell in store after demon gst ..public banks are companies who lost advanced to borrowers and despite specific remedial measures available govt draining out its reservoir ..let the banks on their own legs by creating their sources to satisfy their demands is time to focus on core issues by state..let banks enter primary market with special offers to public.. appeasing banks by funding means depriving individual Indians to enjoy benefits of state ..your concern and conclusion is right nit to find the banks by any means banks are earning from.minor transaction every time already squeezed the accounts holders too much .. depositors are being created by banks yet foolish act of state is intolerable and state should shun it's decision of doles to banks

Lending of loan to entrepreneur
Pradeep jain | Wed Nov 1 05:40:18 2017
Give loan to maximum small sector there is low risk loan will be distributed to maximum people there will be much job creation sanction maximum loan to rural areas so that they do not have to migrate and the production cost also will be less to stand in worl wide market we can export our product to other countries if our production cost reduces and we can collect much foreign currency in this process we can solve employment problem and it will also balance the population of metro city people wil not migrate to cities for job and our villages will progress then only india can progress

Bank Recapitalization
A V Chandran | Wed Nov 1 05:05:38 2017
Bank Recapitalization: It is suggested that Plan process and continuous Review mechanism towards banking economic reforms are must wherein Fully Convertible Debentures subject to phased maturity and reasonable interest rate could be offered based on precise banking performance. By virtue of this mission and vision about Rs.5 lakh crore could be taped from public and owners. Govt role is to encourage banking sector by virtue of reducing old loan outstanding, by virtue of reducing NPAs, by virtue of increasing return on yearly turnover, by virtue of increasing return on Gross Profits, by virtue of increasing return on Net Profits, by virtue of reducing complaints from customers, by virtue of extra ordinary reducing complaints from Farming Force, by virtue of increasing return on fresh loan disbursements, by virtue of opening fresh branches at intrastate, interstate, National and International at the rate of one branch per month at these regions etc. If the above process is through no need to allocate funds by Central Govt is necessary and it is more than sufficient for the continuous growth of the banking sector irrespective of private sector or public sector banks!

Corruption in Banking Sector vs Recapitalization
Urmila à ¤–à ¥‹à ¤¸à ¥‹à ¥‚ | Wed Nov 1 03:55:07 2017
There were wide-spread rumours that during the demonitisation, Bank Managers have become billiomairs overnight by helping unscrupulous citizens in generating black money from the new currency notes. That is why there was an artificial shortage of new currency notes. This black money in new currency notes is growing rapidly and the government has done nothing to catch and punish these unscrupulous Bank Managers and their private accomplishes. In such a situation, can these corrupt Bank Managers be trusted in successful bank recapitalisation ? OR the loot will continue. Why the government is not investigating by a separate agency the nami/benami assets of these bank managers (both in Nationalised, Scheduled and private banks) to check whether it is inline with their known source of income ? This should include the retired bank managers against whom crimial cases are registered. In view of the above I doubt the success of this bank recapitalization.

Bank recapitalization
Shailesh Sheorey | Wed Nov 1 00:55:17 2017
As far as I feel that lending rates should be low and MSME units should have been given incentives rather than to banks , these incentives may not be cash incentives but drastic cut in intrest rates of those ongoing loans of MSME . This would have helped MSME to get the burden of industiral slowdown and effect of demonetization and GST . This in turn will effect bank NPA reduction rise in economy and overall upbeat mood in society . There is depression in the industry today . Efforts should be taken to change the situation .

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