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Absence of bond market main reason for India's banking crisis: CAG
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SME Times News Bureau | 24 Oct, 2018
The major reason for the crisis being faced by banks is the absence of a
developed bond market in the country, the official auditor said on
Tuesday.
Speaking at the launch of the Indian School of Public
Policy here, Comptroller and Auditor General Rajiv Mehrishi maintained
that the root-cause of the banking crisis was neither the scams nor the
non-performing assets (NPAs) but a result of state-run banks being
constrained to lend for long-gestation projects, many of which had
stalled due to various factors.
"Of course, the thefts, the NPAs
have all contributed to the banking crisis, but it originates
elsewhere...India has no bond market, so banks have been forced to lend
for long-gestation infrastructure projects which have then run into
trouble," he said.
"The absence of a bond market has been the major cause of the country's banking crisis."
The
gross NPAs in the Indian banking system have accumulated to a
staggering Rs 10 lakh crore, around 90 per cent of which is accounted
for by state-run banks.
"This asset-liability mismatch is due to the lack of debate on public policy in India," the CAG said.
On
the various scams in public sector banks that have come to light, the
national auditor held the banking regulator Reserve Bank of India
responsible for the systemic lapses.
"What was the regulator
doing all this time...is he, or is he not, accountable for the lapses
that led to the scams," Mehrishi asked.
Industry chamber Assocham
said earlier this month that the successful resolution of the NPA
issues through the new Insolvency and Bankruptcy Code (IBC) will help
deepen India's corporate bond market that is highly concentrated in
AAA-rated bonds.
Citing its study jointly conducted with rating
agency Crisil, the industry chamber had said: "India's corporate bond
market, which contributes 17 per cent to the country's GDP and is highly
concentrated in the AAA-rated bonds, is expected to change once the IBC
brings about successful resolution of stressed assets in a time-bound
manner."
It said that countries like Brazil, Russia, China and
the UK had taken steps to reform the bankruptcy laws which, along with
other structural reforms, led to a significant growth in the corporate
bond market within their financial markets.
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