The editorial, “No free lunch” (August 22) is relevant. It is not wise to expect government-owned banks to function and deliver better results without adequate capital. Crucial sectors of the economy, which have borrowed sizeable amounts from these banks, have fared miserably in liquidating their dues. As a consequence of the ineffectiveness of economic policies, crucial sectors have recorded a dismal performance.
This itself, and the deliberate diversion of bank credit by unscrupulous borrowers, have contributed to the current mountain of bad loans. Although rapid resolution of bad loans is crucial, the progress in doing so by banks is sluggish. Present measures and support systems need to function in sync and swiftly.
Without need-based infusion of capital, government-owned banks wouldn’t be able to lend and credit expansion would be negligible. Restricted lending of banks on account of prompt corrective actions invoked by the banking regulator is hampering the growth of big-ticket credit expansion. The tendency of banks to refrain from taking lending decisions needs to be discouraged. Even though recapitalisation of banks is at the cost of the exchequer, the government, being a major stakeholder, has to do that to ensure the required capital adequacy of banks.
The role of political leaders in contributing to the bad loans situation should not be undermined. Political interference negatively impacts credit decisions of bankers. They should take independent commercial decisions.
V S K Pillai Changanacherry
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