Letters: Funding hazard

Apropos the Budget proposal for exempting new infrastructure loans by banks from cash reserve ratio and statutory liquidity ratio, it strikes one as puzzling that the government will intrude in what should be a matter for the banking regulator. While finding resources for infrastructure is important, it is equally important that the Reserve Bank of India and not the finance ministry decides what loans are to carry what reserve requirement. This announcement is further dented by the fact that the government is encouraging banks to lend long-term based on short-term resources and into sectors that carry significantly higher risks. This is a recipe for moral hazard. The government is actually pushing public sector banks towards a big-risk area and sacrificing the interest of the depositors and minority shareholders.

P Datta Kolkata

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