'Farm debt waiver can cripple Indian banking sector'

The recent farm debt waivers announced by the Centre have potential to cripple the healthy Indian banking sector.

“My concern is not the actual handout, but about cultivating a habit among borrowers. Besides, it is a disincentive for those, who have been repaying or already repaid the loan,” ABN AMRO country head Meera Sanyal told Business Standard.

Commenting on the global recession, she noted it had a salutary effect on the Indian financial market, since the magnitude of leveraged products, including credit cards, was on the rise.“The meltdown has shown that recession of this kind is possible and it is a very good lesson for all of us.” She maintained it was vital to strike a balance between the lending and borrowing in an economy. In the same measure, Sanyal waxed eloquent on Reserve Bank of India (RBI) for handling the financial crisis well.

“Indian financial sector is one of the best regulated in the world, which ensured that our markets were insulated from the ripples of the global meltdown to great extent,” she underlined.She added that RBI had been “pro-active” in its approach as it was amongst the first central banks to loosen policy rates, when things started improving.

Asked about the calls for consolidation in the Indian banking space, Sanyal observed on the contrary, a reverse trend was prevailing the worlds over.

“The financial sector knows no boundary and although banks require strong capital base and consolidation is one option, if a bank becomes too big to fail, it should not be so big.”However, she added Indian banks such as SBI and ICICI were well poised for consolidation and had the requisite skills.