With reference to "Worst-case scenario for the banking crisis" (July 11), the present banking crisis is mainly due to the mounting of stressed assets. The measures taken to curtail the growth of bad loans are not strong enough to deliver the desired results. The capacity and willingness of public sector lenders are shrinking and the banking sector's role as growth engine is turning ineffective.
Barring the retail sector, the demand for credit from other segments of the economy is sluggishly rising on account of the high levels of debt of business enterprises and the unaffordable cost of credit. A reasonable reduction in the price of credit and drastic improvement in the capacity of lenders to lend will break the vicious cycle of low growth.
While the primary aim of lending is to earn interest, lenders need to bear the healthy rules in mind to ensure the return of the money and its cost as well. Many a time lenders are distributing money instead of lending, and wherever this is happening it is contributing significantly to stressed assets. Fast execution of comprehensive economic reforms for growth and social development is the best remedy the banking sector.
V S K Pillai, Changanacherry
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