This refers to “Banks at poverty line of capital will stay poor: RBI” (December 7). There is an imperative need for the public sector banks to keep higher capital than those specified in the Basel Accord. These banks are poorly managed, have high non-performing assets, their record of bad loan recovery is not very comforting and they are exposed to unusually high degree of credit and operational risks (notice the number of high value frauds in these entities).
So the Reserve Bank of India is right in requiring them to maintain capital requirements higher than those specified in the Basel Accord. The government’s attempt to pressurise the Central bank to lower capital adequacy norms is a disservice to these entities. Sound regulatory norms cannot be sacrificed at the altar of political expediency. The mandarins of North Block should understand and think through very carefully the implications of what they are saying before suggesting political solutions to problems in an important component of the financial system.
Arun Pasricha New Delhi
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