Adding Trouble

LETTERS TO THE EDITOR

A banker has been described as one who lends you an umbrella when it is not raining and wants it back the moment it starts to rain. What Ajay Shah suggests in Lending with nearly zero risk (January 28) would distinguish the aforesaid banker with the further propensity to empty a bucket of water on the hapless borrower caught in the rain! It is obvious that a loan would be entirely risk-free if it is covered by a freely tradable collateral and the lender is predisposed to foreclose it readily. The question is how does such a norm help leveraging productive but risk bearing investment ? It doesnt. Following this modus operandi will mean recycling the same stock of funds, creating no new assets, nor any wealth. And while the fall-safe operation may succeed in treating the malady of bad debts, the bank can hardly survive deprivation of revenues that prudent risk-bearing brings.