Letters: Functional autonomy

Apropos "NPA provisioning drowns banks' profits" (February 12), as the financials of the banks for the combined three quarters and the third quarter ended December 15 now emerge, it is clear and also worrying that their bad loans are rising phenomenally owing to various factors. Banks cannot be blamed entirely for it. The bad loans are also restricting the banks' ability to lend to the productive sectors of economy. While both the market regulator and the government are clearly seized of the matter, it is important to find quick solutions so that the situation doesn't spiral out of control. Cleaning up of the balance sheets of banks entails huge provisioning, which also raises the issue of capital infusions into banks by the government.

Capital is a scarce commodity, and given that the government's fiscal situation is not getting any better how - as the largest stakeholder in public sector banks (PSB) - would it be able to meet the additional capital requirements is a matter for debate. Any capital infusion also comes at the cost of the taxpayer's money. Creation of bad banks along the lines of stressed asset stabilisation fund by transferring all such stressed loans of banks to them can be thought of. Banks should be allowed to focus on productive lending coupled with a reasonable degree of operational autonomy for sustained growth of the economy, instead of getting bogged down by bad loans. Banks should be allowed to take decisions purely based on commercial considerations. Bad politics is also bad economics. That brings to the fore the need for big-bang reforms in politics.

Srinivasan Umashankar Nagpur

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