Letters: The bad asset baggage

With reference to the column, "A shift in the RBI's strategy" (April 11) by Abheek Barua and Bidisha Ganguly, the Reserve Bank of India's focus on increasing liquidity to improve the transmission process will not yield the desired results. The reason is public sector banks (PSB), which dominate the banking space in India, continue to have a huge baggage of bad assets. These assets have hampered their profitability to a great extent. Unless the issue of bad assets is addressed properly, the transmission process will get bogged down.

The banking regulator has been addressing the issue in a variety of ways. But this would not only take time - due to the sheer volume and pile-up of bad assets - but also take the sheen off changes in policy rates initiated by the RBI often.

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PSBs are not keen to avail of liquidity through the open market operations window, as they are already overweight in government securities through the statutory liquidity ratio (SLR) requirement. PSBs are not eager to shed their excess holding in SLR due to their allergy to augment credit. They are happy with "lazy banking" that automatically takes care of their "zero-risk" aptitude.

K V Rao, Bengaluru

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