Letter to BS: Capital infusion and bank-specific reforms must go together

This refers to the editorial “Recapitalisation sans reform” (December 28). The resolution of the gigantic non-performing assets (NPAs) to improve the net worth and the return on assets is a long-term exercise. In fact, weak public sector banks are losing market share and credibility resulting in an erosion of market capitalisation and loss of confidence. It is preventing banks from raising capital from the market.

The outstanding loans are a result of a combination of factors like economic downturn, reckless lending, weak governance, corrupt practices and loan frauds. The lending of the banks needs to be under the strict check of the banking regulator to ensure that the appraisal of the projects and credit delivery do not become the cause of a loan turning bad. Fixing responsibility and accountability on the bank for taking wrong decisions must be done without delay to ensure compliance.

Capital infusion without strong mechanisms for swift recovery of the loans is futile. It is imperative to strengthen the supporting legal system for speedy disposal of cases. Capital infusion and bank-specific reforms must go together to improve efficiencies. At this juncture, the government should not betray weak banks. Privatising banks is not a panacea.

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VSK Pillai, Kottayam

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