Letter to BS: Power firms are in dire straits on account of low recoveries

The depositors and investors, who are basically people who have put their hard-earned money, and pensioners who have put their savings in banks, mutual funds and LIC are not adequately protected

This refers to "How not to waste the NBFC crisis" (June 10). I agree with the writer about the inadvisability of directing banks to lend to NBFCs in difficulties. The whole system is weighed in favour of the borrowers. The depositors and investors, who are basically people who have put their hard-earned money, and pensioners who have put their life long savings in banks, mutual funds and LIC are not adequately protected. This applies to banks saddled with huge unpaid loans to defaulting corporates or power companies. Power companies are in dire straits on account of low recoveries and transmission losses. This applies equally to banks and mutual funds that have lent to those NBFCs and HFCs who have in turn have lent to high risk borrowers or diverted the funds to front companies or affiliates with no prospect of repayments. Then there is the LIC, the premier life insurance behemoth, which is told to invest in all distressed banks and corporates, at the expense of its policy holders and investors.  

It is always the depositors, investors and policy holders who must take a hit in the form of lower returns/interest. Now even some pension funds that have invested in these entities have to write down big losses. At a time when there are low returns on investment in physical assets, the distortions in financial system disincentivises investments in bank deposits and mutual funds. What options does a person have when he reads every other day that either some big corporate borrower has defaulted or some big NBFC or HFC is in dire straits? All the solutions seem to end at the doors of the hapless depositors, investors and policy holders. And now, Union ministers are training their guns on the reserves of the central bank to fund their favourite projects!

Arun Pasricha,  New Delhi
 

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