Letters: PSBs in vicious circle

This refers to the report "Stressed assets, opaque disclosures hurt govt banks' valuations" (January 30). Public sector banks (PSBs) have become guzzlers of capital. PSBs, accounting for 75 per cent of the total deposits and advances, have not been able to do any fresh business in a big way because of the shortage of capital. Bad loans and stressed assets have swamped their books. These two items account for more than 18 per cent of their total assets. These have been eating into the banks' profits since provisions for bad assets are made from earnings. By very nature of their business, banks enjoy high leverage.

Good corporate governance, top-class managers, good business policies and high productivity of employees have all contributed to their enviable growth. But can PSB managers guarantee good business comprising 100 per cent additional assets that do not require any provisions for the next 10 years? PSBs have now reached a plateau - a point of no return. They will not be able to augment their lending capacity by raising fresh capital since their major stakeholder (the Government of India) is not keen on infusing fresh capital. They are already stuck in a vicious circle in their business. Both the top management and the government are responsible for this pathetic situation.

K V Rao Bengaluru

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